Abstract
We examine the co-movement patterns of European business cycles during the period 1986–2011, with an obvious focal point the year 1999 that marked the introduction of the common currency, the euro. The empirical analysis is performed within the context of Graph Theory where we apply a rolling window approach in order to dynamically analyze the evolution of the network that corresponds to the GDP growth rate cross-correlations of 22 European economies. The main innovation of our study is that the analysis is performed by introducing what we call the threshold-minimum dominating set (T-MDS). We provide evidence at the network level and analyze its structure and evolution by the metrics of total network edges, network density, isolated nodes and the cardinality of the T-MDS set. Next, focusing on the country level, we analyze each individual country’s neighborhood set (economies with similar growth patterns) in the pre- and post-euro era in order to assess the degree of convergence to the rest of the economies in the network. Our empirical results indicate that despite a few economies’ idiosyncratic behavior, the business cycles of the European countries display an overall increased degree of synchronization and thus convergence in the single currency era.
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Notes
Officially “the Treaty on European Union”.
NUTS (Nomenclature of territorial units for statistics) is a hierarchical system that divides the total economic region of Europe in three levels of aggregates for statistical economic analysis purposes.
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Acknowledgments
This research has been co-financed by the European Union (European Social Fund (ESF)) and Greek national funds through the Operational Program ‘Education and Lifelong Learning’ of the National Strategic Reference Framework (NSRF)—Research Funding Program: THALES (MIS 380292). Investing in knowledge society through the European Social Fund.
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Papadimitriou, T., Gogas, P. & Sarantitis, G.A. Convergence of European Business Cycles: A Complex Networks Approach. Comput Econ 47, 97–119 (2016). https://doi.org/10.1007/s10614-014-9474-3
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DOI: https://doi.org/10.1007/s10614-014-9474-3