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Have UK and Eurozone Business Cycles Become More Correlated?

Published online by Cambridge University Press:  26 March 2020

Michael Massmann  and
James Mitchell
Michael Massmann*
Affiliation:
National Institute of Economic and Social Research and Lincoln College, Oxford
James Mitchell*
Affiliation:
National Institute of Economic and Social Research
*
e-mail: m.massmann@niesr.ac.uk
e-mail: j.mitchell@niesr.ac.uk
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Abstract

Recent estimates suggest that the UK business cycle is closer to the Eurozone business cycle than it was in the early 1990s. This paper investigates whether this phenomenon has been accompanied by increased correlation between UK and Eurozone business cycles. Considering a range of alternative measures of the business cycle we find, using 40 years of monthly industrial production data, no clear evidence for a sustained increase in correlation between UK and Eurozone business cycles. Instead, in the 1990s, the correlation between UK and Eurozone business cycles has been volatile relative to historical levels. It is only recently, i.e. since 1997, that the UK has become more correlated with the Eurozone, although the level of correlation is lower than against non-Eurozone countries. Importantly, the strength of these relationships is sensitive to how the business cycle is measured. Care should therefore be exercised when using business cycles estimates to test the relationship between UK and Eurozone business cycles.

Type
Articles
Information
National Institute Economic Review , Volume 182 , October 2002 , pp. 58 - 71
Copyright
Copyright © 2002 National Institute of Economic and Social Research

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