The characteristics of cyclical co-ordination among national economies is a crucial issue in the context of the EMU, and this project will contribute to understanding of the European business cycle. More specifically, the project will empirically examine the nature of the European business cycle and its evolution over time. The objectives are to:
1) Examine the changing business cycle relationships between member countries of the EMU;
2) Consider whether relationships between EMU countries and those outside the EMU, particularly the UK and US, have changed over time;
3) Examine the transmission of business cycle fluctuations between countries of the EMU to determine whether Germany is (as often presumed) the economic leader;
4) Develop econometric models that capture the Changing relationships over time. To carry out the project I will use cross-correlation analysis over moving spans of data, linear and nonlinear vector autoregressive (VAR) models. The smooth transition models to be applied here do not appear to have been used previously in the analysis of the European business cycle. They are attractive in this context because they can allow coefficients to change over time and hence may be able to capture the changing relationships among EMU countries.