Theoretical and Empirical Background

Abstract

As argued in the introduction, international diversification (a small home bias) and similar portfolios could have an impact on business cycle convergence. The proceeding in the next sections can be described as follows: Firstly, it is shown why converged business cycles are important for a monetary union such as the EMU. A special focus is laid upon financial integration because of its major role on investment possibilities and business cycle convergence. The second question is: Can financial wealth alone have an influence on business cycle convergence? The answer is probably “no” if investment strategies do not converge and lead to