Business cycles synchronisations in the Baltic countries
Abstract
Purpose – The purpose of the paper is to investigate the level of real business cycles synchronisation between the Baltic and the Nordic countries and between the Baltic countries and the euro area.
Research methodology – Wavelet analysis was employed to evaluate the level of synchronisation for different periods and time. Quarterly data from 1995 Q2 to 2019 Q4 was used.
Findings – We discover the influence of several essential events in economies of the Baltic countries on the synchronisation: accession to the EU in 2004, the introduction of the euro in the Baltic countries and some external shocks.
Research limitation – A lack of reliable long-term data from the Baltic countries does not allow performing calculation for other important financial variables.
Practical implications – Results of the research are important for forecasting and implementing flexible economic policies of the Baltic countries.
Originality/Value – Business cycles synchronisation between the Baltic countries themselves and between the Baltic countries, the Nordic countries and the euro area countries across time and various frequency dimensions was investigated for the first time.
Keyword : synchronisation, business cycle, wavelet, Baltic, Nordic, the euro area
How to Cite
Kregždė, A. (2020). Business cycles synchronisations in the Baltic countries. Business, Management and Economics Engineering, 18(1), 127-141. https://doi.org/10.3846/bme.2020.12254
This work is licensed under a Creative Commons Attribution 4.0 International License.
References
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Beirne, J. (2020). Financial cycles in asset market and regions. Economic Modelling https://doi.org/10.1016/j.econmod.2020.01.015
Berdiev, A. N., & Chang, C. P. (2015). Business cycle synchronisation in Asia-Pacific: New evidence from wavelet analysis. Journal of Asian Economics, 37, 20–33. https://doi.org/10.1016/j.asieco.2015.01.004
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Darvas, Z., & Szapáry, G. (2008). Business cycle synchronisation in the enlarged EU. Open Economies Review, 19(1), 1–19. https://doi.org/10.1007/s11079-007-9027-7
Di Giorgio, C. (2016). Business cycle synchronisation of CEECs with the Euro Area: Regime switching approach. Journal of Common Market Studies, 54(2), 284–300. https://doi.org/10.1111/jcms.12302
Furceri, D., & Karras, G. (2011). Business-cycle synchronisation in the EMU. Applied Economics, 40(12), 1491–1501. https://doi.org/10.1080/00036840600843954
Gallegati, M., Ramsey, J., & Semmler, W. (2014). Interest rate spreads and output: A time scale decomposition analysis using wavelets. Computational Statistics & Data Analysis, 76(C), 283–290. https://doi.org/10.1016/j.csda.2014.02.024
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Kurowski, L., & Rogowicz, K. (2018). Are business and credit cycles synchronised internally or externally? Economic Modelling, 74(C), 124–141. https://doi.org/10.1016/j.econmod.2018.05.009
Loannou, L. (2018). Housing price, credit, and output cycles: How domestic and external shocks impact Lithuania’s credit (IMF working papers 2018/160). International Monetary Fund. https://doi.org/10.5089/9781484367513.001
Lehwald, S. (2013). Has the Euro changed business cycle synchronisation? Evidence from the core and the periphery. Empirica, 40(4), 655–684. https://doi.org/10.1007/s10663-012-9205-8
Martinez-Martin, J., Saiz, L., & Stoevsky, G. (2018). Growth synchronisation in euro area countries. In Economic Bulletin Boxes (vol. 5). European Central Bank.
Miles, W. & Vijverberg, C. C. (2018). Did the euro common currency increase or decrease business cycle synchronisation for its member countries? Economica, 85(339), 558–580. https://doi.org/10.1111/ecca.12201
Montoya, L. A., & de Haan, D. (2008). Regional business cycle synchronisation in Europe? International Economics and Economic Policy, 5(1–2), 123–137. https://doi.org/10.1007/s10368-008-0106-z
Nekhili, R., Aslihan, A.-S., & Gençay, R. (2002). Exploring exchange rate returns at different time horizons. Physica A, 313, 671–682. https://doi.org/10.1016/S0378-4371(02)00986-X
Njegić, J., Živkov, D., & Damnjanović, J. (2017). Business cycles synchronisation between EU-15 and selected Eastern European Countries – The wavelet coherence approach. Acta Oeconomica, 67(4), 539–556. https://doi.org/10.1556/032.2017.67.4.3
Oman, W. (2019). The synchronisation of business cycles and financial cycles in the euro area. International Journal of Central Banking, 15(1), 327–362.
Rünstler, G., & Vlekke, M. (2018). Business, housing and credit cycles. Journal of Applied Econometrics, 33(2), 212–226. https://doi.org/10.1002/jae.2604
Scharnagl, M., & Mandler, M. (2019). Real and financial cycles in Euro Area economies: Results from wavelet analysis. Journal of Economics and Statistics, 239(5–6), 895–916. https://doi.org/10.1515/jbnst-2019-0035
Syllignakis, M. N., & Kouretas, G. P. (2011). Dynamic correlation analysis of financial contagion: Evidence from the Central and Eastern European markets. International Review of Economics and Finance, (20), 717–732. https://doi.org/10.1016/j.iref.2011.01.006
Torrence, C., & Compo, G. (1998). A practical guide to wavelet analysis. Bulletin of the American Meteorological Society, (79), 61–78. https://doi.org/10.1175/1520-0477(1998)079<0061:APGTWA>2.0.CO;2
Valentinaitė, M., & Snieška, V. (2005). Baltic States business cycle symmetry: Shock correlation approach. Engineering Economics, 44(4), 24–30.
Addison, P. S. (2017). The illustrated wavelet transform handbook: Introductory theory and applications in science, engineering, medicine and finance. CRC Press.
Aguiar-Conraria, L., & Soares, M. J. (2011). Business cycle synchronisation and the Euro: A wavelet analysis. Journal of Macroeconomics, 33(3), 477–489. https://doi.org/10.1016/j.jmacro.2011.02.005
Akin, C. (2012). Multiple determinants of business cycle synchronisation. https://doi.org/10.2139/ssrn.1022648
Almansour, A., Aqib, A., Bluedorn, J., & Duttagupta, R. (2015). How vulnerable are emerging markets to external shocks. Journal of Policy Modelling, 37(3), 460–483. https://doi.org/10.1016/j.jpolmod.2015.03.009
Artis, M., & Okubo, T. (2009). Globalization and business cycle transmission. The North American Journal of Economics and Finance, 20(2), 91–99. https://doi.org/10.1016/j.najef.2009.03.002
Balfoussia, H., Burlon, L., Buss, G., Comunale, M., De Backer, B., Dewachter, H., Guarda, P., Haavio, M., Hindrayanto, I., Iskrev, N. V., Jaccard, I., Kulikov, D., Kunovac, D., Lenarcic, C., Lequien, M., Lozej, M., Mandler, M., Papageorgiou, D., Pedersen, J., Perez-Quiros, G., Rannenberg, A., Rots, E., Rünstler, G., Scharnagl, M., & Wel, P. (2018). Real and financial cycles in EU Countries: stylised facts and modelling implications (ECB Occasional Paper No. 205). European Central Bank.
Beck, K. (2019). What drives business cycle synchronisation? BMA results from the European Union. Baltic Journal of Economics, 19(2), 248–275. https://doi.org/10.1080/1406099X.2019.1652393
Beirne, J. (2020). Financial cycles in asset market and regions. Economic Modelling https://doi.org/10.1016/j.econmod.2020.01.015
Berdiev, A. N., & Chang, C. P. (2015). Business cycle synchronisation in Asia-Pacific: New evidence from wavelet analysis. Journal of Asian Economics, 37, 20–33. https://doi.org/10.1016/j.asieco.2015.01.004
Bordo, M., & Helbling, T. (2011). International business cycle synchronisation in historical perspective. The Manchester School, 79(2), 208–238. https://doi.org/10.1111/j.1467-9957.2010.02236.x
Darvas, Z., & Szapáry, G. (2008). Business cycle synchronisation in the enlarged EU. Open Economies Review, 19(1), 1–19. https://doi.org/10.1007/s11079-007-9027-7
Di Giorgio, C. (2016). Business cycle synchronisation of CEECs with the Euro Area: Regime switching approach. Journal of Common Market Studies, 54(2), 284–300. https://doi.org/10.1111/jcms.12302
Furceri, D., & Karras, G. (2011). Business-cycle synchronisation in the EMU. Applied Economics, 40(12), 1491–1501. https://doi.org/10.1080/00036840600843954
Gallegati, M., Ramsey, J., & Semmler, W. (2014). Interest rate spreads and output: A time scale decomposition analysis using wavelets. Computational Statistics & Data Analysis, 76(C), 283–290. https://doi.org/10.1016/j.csda.2014.02.024
Grigoraş, V., & Stanciu, I. E. (2016). New evidence on the (de)synchronisation of business cycles: Reshaping the European business cycle. International Economics, 147, 27–52. https://doi.org/10.1016/j.inteco.2016.03.002
Grinsted, A., Moore, J., & Jevrejeva, S. (2004). Application of the cross wavelet transform and wavelet coherence to geophysical time series. Nonlinear Processes in Geophysics, 11(5/6), 561–566. https://doi.org/10.5194/npg-11-561-2004
Hanus, L., & Vacha, L. (2018). Growth cycle synchronisation of the Visegrad Four and the European Union. Empirical Economics, 1–17.
Hegerty, S. W. (2017). Common cycles and Baltic-Nordic economic integration. Economics and Business, 31(1), 70–81. https://doi.org/10.1515/eb-2017-0019
Heller, J., & Warzala, R. (2019). The effects of entering the Eurozone on other Central and Eastern European Countries in relation to Poland. Journal of Competitiveness, 11(1), 5–21. https://doi.org/10.7441/joc.2019.01.01
Kregzde, A. (2018). Wavelets analysis of the Baltic equity market: Risk and co-movement with the European market. Engineering Economics, 29(5), 507–515. https://doi.org/10.5755/j01.ee.29.5.19330
Kurowski, L., & Rogowicz, K. (2018). Are business and credit cycles synchronised internally or externally? Economic Modelling, 74(C), 124–141. https://doi.org/10.1016/j.econmod.2018.05.009
Loannou, L. (2018). Housing price, credit, and output cycles: How domestic and external shocks impact Lithuania’s credit (IMF working papers 2018/160). International Monetary Fund. https://doi.org/10.5089/9781484367513.001
Lehwald, S. (2013). Has the Euro changed business cycle synchronisation? Evidence from the core and the periphery. Empirica, 40(4), 655–684. https://doi.org/10.1007/s10663-012-9205-8
Martinez-Martin, J., Saiz, L., & Stoevsky, G. (2018). Growth synchronisation in euro area countries. In Economic Bulletin Boxes (vol. 5). European Central Bank.
Miles, W. & Vijverberg, C. C. (2018). Did the euro common currency increase or decrease business cycle synchronisation for its member countries? Economica, 85(339), 558–580. https://doi.org/10.1111/ecca.12201
Montoya, L. A., & de Haan, D. (2008). Regional business cycle synchronisation in Europe? International Economics and Economic Policy, 5(1–2), 123–137. https://doi.org/10.1007/s10368-008-0106-z
Nekhili, R., Aslihan, A.-S., & Gençay, R. (2002). Exploring exchange rate returns at different time horizons. Physica A, 313, 671–682. https://doi.org/10.1016/S0378-4371(02)00986-X
Njegić, J., Živkov, D., & Damnjanović, J. (2017). Business cycles synchronisation between EU-15 and selected Eastern European Countries – The wavelet coherence approach. Acta Oeconomica, 67(4), 539–556. https://doi.org/10.1556/032.2017.67.4.3
Oman, W. (2019). The synchronisation of business cycles and financial cycles in the euro area. International Journal of Central Banking, 15(1), 327–362.
Rünstler, G., & Vlekke, M. (2018). Business, housing and credit cycles. Journal of Applied Econometrics, 33(2), 212–226. https://doi.org/10.1002/jae.2604
Scharnagl, M., & Mandler, M. (2019). Real and financial cycles in Euro Area economies: Results from wavelet analysis. Journal of Economics and Statistics, 239(5–6), 895–916. https://doi.org/10.1515/jbnst-2019-0035
Syllignakis, M. N., & Kouretas, G. P. (2011). Dynamic correlation analysis of financial contagion: Evidence from the Central and Eastern European markets. International Review of Economics and Finance, (20), 717–732. https://doi.org/10.1016/j.iref.2011.01.006
Torrence, C., & Compo, G. (1998). A practical guide to wavelet analysis. Bulletin of the American Meteorological Society, (79), 61–78. https://doi.org/10.1175/1520-0477(1998)079<0061:APGTWA>2.0.CO;2
Valentinaitė, M., & Snieška, V. (2005). Baltic States business cycle symmetry: Shock correlation approach. Engineering Economics, 44(4), 24–30.