Convergence between the business cycles of Central and Eastern European countries and the Euro area

Abstract

Although entry to the Euro area (EA) is based only on fulfilment of the Maastricht criteria, implementation of optimum currency criteria and real economic convergence determines the benefits and costs of monetary integration. This paper focuses on the synchronization of business cycles among Central and Eastern European countries (CEECs) and the EA. Business cycles are extracted from GDP data series using a double Hodrick-Prescott filter method. The degree of co-movement of cycles is evaluated on the basis of various methods of rolling correlation. Results show that there is no common CEE business cycle, although a synchronization trend is evident. Similarly, there is a strong trend of convergence of CEEC national business cycles toward that of the EA.