The European Business Cycle

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  • 1 January 2002
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      • Published in RePEc
Abstract
This paper deals with the existence and identification of a common European growth cycle. Univariate Markov switching autoregressions (MS-AR) are used for individual countries in order to detect changes in the mean growth rate of industrial production. A Markov switching vector autoregression model (MS-VAR) is then used to identify a common cycle in Europe. Three important results are obtained. First, we find a common unobserved component governing the business cycle dynamics in Europe, suggesting the existence of a common business cycle. Second, we propose a dating of the business cycle in Europe, both for an index of industrial production (IIP) and gross domestic product (GDP); both chronologies appear to be consistent. Third, we retrieve an important set of stylized facts and relate these with those reported for the US economy (see, among others, French (1993), Warnock y Warnock (2000) and Sichel (1994)).
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