Title: Synchronization patterns in the European Union
Authors: Mattia Guerini - OFCE - SciencesPo (France) [presenting]
Mauro Napoletano - OFCE - SciencesPo (France)
Duc Thi Luu - University of Kiel (Germany)
Abstract: A novel approach is proposed for investigating the synchronization of business cycles. We apply it to a EUROSTAT database that describes the manufacturing industrial production in the EU and that covers the 2000-2016 period at a monthly frequency. We employ the method of Random Matrix Theory (RMT), which is now commonly used for the study of cross-correlations between stock-indexes. Our empirical exercise traces the evolution of the European synchronization patterns and identifies the emergence of synchronization clusters between different EU economies. Two main conclusions are drawn. First, synchronization in the Euro area increased during the first decade of the century, reached its peak during the crisis period, but decreased in the aftermath of the great recession, reverting to the levels observable at the beginning of the century. Second, different clusters of countries that coordinate well among them are identified: while in the early years of the century the clustering broke along the east-west dimension, the recession brought about a structural transformation and nowadays the break is evident alongside the north-south axis. We conclude that the recent a-synchronization process might be harmful for the EU because of the heterogeneous responses from the common policies that it might entail.