Common macroeconomic shocks and business cycle fluctuations in Euro area countries

- We investigate the effects of area-wide shocks in a group of Eurozone countries.
- The (near) structural VAR methodology is adopted to recover the exogenous shocks.
- We find that a common monetary policy shock causes a recession in all countries.
- Germany, France, Italy, Spain and Belgium have business cycle fluctuations dominated by Euro-are shocks.
- Greece, Ireland and Portugal exhibit fluctuations whose main drivers are national shocks.

This paper investigates the dynamic effects of common macroeconomic shocks in shaping business cycle fluctuations in a group of Euro-area countries. In particular, by using the structural (near) VAR methodology, we investigate the effect of area-wide shocks, with particular attention to monetary policy shocks. The main conclusion is that: (a) contractionary monetary policy shocks cause similar recessionary effects in all countries; (b) as far as business cycle fluctuations are concerned, there is a separation into two distinct groups of countries, with a first group including the biggest European economies in which business cycle fluctuations are mainly explained by common, area-wide shocks and a second one, including Greece, Ireland and Portugal, in which the national shocks play, instead, a much greater role.