DP7206 Common and Spatial Drivers in Regional Business Cycles

Author(s): Michael J Artis , Christian Dreger , Konstantin Kholodilin

Publication Date: March 2009

Keyword(s): Business cycle convergence , Spatial correlation , spatial panel model

JEL(s): C51 , E32 , E37

Programme Areas: International Macroeconomics

Link to this Page: www.cepr.org/pubs/dps/DP7206.asp.asp

We examine real business cycle convergence for 41 euro area regions and 48 US states. Results obtained by a panel model with spatial correlation indicate that the relevance of common business cycle factors is rather stable over the past two decades in the euro area and the US. Ongoing business cycle convergence often detected in cross-country data is not confirmed at the regional level. The degree of synchronization across the euro area is similar to that to be found for the US states. Thus, the lack of convergence does not seem to be an impediment to a common monetary policy.