No. 100. STOCHASTIC SHOCKS OF THE EUROPEAN AND THE GREEK ECONOMIC FLUCTUATIONS
N. Georgikopoulos, C. Leon. 2009.
In this paper, we employ spectral analysis and a VAR model to evaluate the wave length of the business cycles, the volatility and the transmission mechanism of stochastic shocks between Greece and the Eurozone, for the period 1980-2005 with quarterly data. Recent empirical research in the area of business cycle for the developed economies shows that there is an increasing synchronization of the cycles in the sense that cycles are of approximately equal wave length, and exhibit similar lead-lag patterns and decreasing volatility over time, although this is not a universally accepted view. In this context, the questions we address regarding the European and the Greek GDP cycles are the following: What is the length (duration) of the Greek and the European cycles? What is their absolute and relative volatility? What are the correlation, cross-correlation and the transmission mechanism between these two cycles? Are these characteristics the same over the whole period of investigation (1980-2005) or is something changing over time? Our results show, first, that less severe cyclical fluctuations for both series are observed over time and, second, a weakening relationship of these cyclical fluctuations between the Eurozone and Greece and time-varying transmission mechanisms are also observed.