Examining the drivers of business cycle divergence between Euro Area and Romania

TL;DR

This paper analyzes the divergence in business cycles between the Euro Area and Romania, identifying key drivers such as economic structure, wage convergence, and openness, with implications for Romania's potential EMU accession.

Contribution

It provides an empirical analysis of the factors influencing business cycle divergence between Romania and the Euro Area from 2002 to 2017.

Findings

Output-gaps synchronization declined after 2010.

Economic and wage convergence reduce divergence.

GDP per capita convergence increases divergence.

Abstract

This research aims to provide an explanatory analyses of the business cycles divergence between Euro Area and Romania, respectively its drivers, since the synchronisation of output-gaps is one of the most important topic in the context of a potential EMU accession. According to the estimates, output-gaps synchronisation entered on a downward path in the subperiod 2010-2017, compared to 2002-2009. The paper demonstrates there is a negative relationship between business cycles divergence and three factors (economic structure convergence, wage structure convergence and economic openness), but also a positive relationship between it and its autoregressive term, respectively the GDP per capita convergence.