Are Monetary Unions More Synchronous than Non-Monetary Unions?

46 Pages Posted: 21 Oct 2015

See all articles by Patrick M. Crowley

Patrick M. Crowley

Texas A&M University - Corpus Christi; Bank of Finland/Suomen Pankki

Christopher Trombley

Texas A&M University - Corpus Christi

Date Written: 2015

Abstract

Within currency unions, the conventional wisdom is that there should be a high degree of macroeconomic synchronicity between the constituent parts of the union. But this conjecture has never been formally tested by comparing sample of monetary unions with a control sample of countries that do not belong to a monetary union. In this paper we take euro area data, US State macro data, Canadian provincial data and Australian state data — namely real Gross Domestic Product (GDP) growth, the GDP deflator growth and unemployment rate data — and use techniques relating to recurrence plots to measure the degree of synchronicity in dynamics over time using a dissimilarity measure. The results show that for the most part monetary unions are more synchronous than non-monetary unions, but that this is not always the case and particularly in the case of real GDP growth. Furthermore, Australia is by far the most synchronous monetary union in our sample.

Keywords: C49, E32, F44, F45, F62, business cycles, growth cycles, frequency domain, optimal currency area, macroeconomic synchronization, monetary policy, single currency

Suggested Citation

Crowley, Patrick M. and Trombley, Christopher, Are Monetary Unions More Synchronous than Non-Monetary Unions? (2015). Bank of Finland Research Discussion Paper No. 11/2015, Available at SSRN: https://ssrn.com/abstract=2676986

Patrick M. Crowley (Contact Author)

Texas A&M University - Corpus Christi ( email )

6300 Ocean Drive, Unit #5808
Corpus Christi, TX 78412
United States

HOME PAGE: http://patrickmcrowley.com

Bank of Finland/Suomen Pankki ( email )

P.O. Box 160
FIN-00101 Helsinki
Finland

Christopher Trombley

Texas A&M University - Corpus Christi ( email )

6300 Ocean Drive
Corpus Christi, TX 78412
United States

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