Coherence of Business Cycles and Economic Shocks between Croatia and Euro Area Member States

Published: 15/2/2018
Publication Working Papers
Issue W-53
Authors Karlo Kotarac, Davor Kunovac and Rafael Ravnik
Date September 2017
JEL F33, F44, E42, C32
ISSN 1334-0131

Keywords

cycle coherence, aggregate supply and demand shocks, symmetric and asymmetric shocks

Summary

The paper analyses the coherence of business cycles and supply and demand shocks between Croatia and euro area core countries. The results obtained point to several basic conclusions. Firstly, the coherence of business cycles and the correlation of supply and demand shocks between Croatia and euro area core countries are relatively high. Secondly, symmetric (common) shocks are dominant for explaining the dynamics in domestic GDP, while the contributions of asymmetric shocks are significantly smaller. Thirdly, the results point to the convergence of supply and demand shocks and business cycles between Croatia and euro area core countries. Based on all of the above, we may conclude that the introduction of the euro and the related adoption of the common countercyclical monetary policy should not result in significant costs for the Croatian economy.