Karadimitropoulou, K, "Lost in Aggregation: decomposing the Eurozone's business cycle fluctuations"

Title: "Lost in Aggregation: decomposing the Eurozone's business cycle fluctuations"

Speaker:  Associate Professor Katerina Karadimitropoulou, University of Piraeus

Host: Assistant Professor Kospentaris Ioannis, Department of Economics, Athens University of Economics and Business

Time: 15.30 -17.00

Room: 76, Patission Str., Antoniadou Wing, 3rd floor, Room A36

Abstact: This paper examines the dynamics of business cycle (BC) synchronization at a disaggregated level across regions, sectors, and countries within the Eurozone, with a focus on the impact of the euro’s introduction. Using data from 51 NUTS 1 regions and six sectors across nine Eurozone countries for 1980–2019, we employ a Bayesian dynamic latent factor model (DFM) that includes four different types of factors: Eurozone, country, sectoral and regional. Our results show that, prior to the euro, regional factors were the main drivers of BC fluctuations, whereas sectoral factors became more prominent post-euro. This shift suggests that international factors, that is sectoral and Eurozone-wide components, have gained importance in explaining cyclical fluctuations, indicating greater synchronization. However, regional disparities remain, highlighting the need for policies that address intra-national differences in future economic integration efforts.

Keywords: international business cycles, business cycle synchronization, Bayesian dynamic factor model, sectoral data, regional data, Eurozone

JEL: C38, E32, F44