Synchronization without similarity. The effects of COVID-19 pandemic on GDP growth and inflation in the Eurozone

ABSTRACT

As the European Central Bank implements a common monetary policy for all member states, the effectiveness of the policy hinges upon the synchronization and similarity of inflation and GDP growth between them. We examine the consequences of COVID-19 outbreak for GDP growth and inflation of the Eurozone countries. We find that business cycles have been diverging since the aftermath of the Financial Crisis; however, the outbreak of COVID-19 brought about synchronization on a record scale. However, this increase in comovement is accompanied by an increase in the dissimilarity in the rates of GDP growth. Ergo, synchronization without similarity.

KEYWORDS:

• Business cycle synchronization
• Eurozone
• COVID-19
• monetary policy

JEL CLASSIFICATION:

• E31
• E32
• F41
• F15

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

¹ We obtain qualitatively similar results as in the case of growth rates, using Christiano-Fitzgerald and Hodrick-Prescott filter. The results are available upon request.

Additional information

Funding

This work was supported by the Narodowym Centrum Nauki [DEC-2019/35/D/HS4/03636].