Sectoral specialisation in the EU a macroeconomic perspective

Table 12 Sectoral co-movement

Sources: Eurostat, NCBs, ECB calculations.

Notes: The table reports the share of the variance of the business cycle component of each sector explained by the aggregate business
cycle for the periods 1980-1990 and 1991-2001. Formally: Var (β₁ BC^^a + β₂ BC^^g + β₃ BC β' )/ Var ∖pC^secto"J where β₁, β₂ and fβ
are the estimated coefficients of the impact of the aggregate business cycle component at lags -1, 0, and 1 ( BCf , BC^^g and BC^^g )
on the business cycle component of sector i, i.e. BCf^{ector l} = β₁BCfG + β₂BC^^^g + β₃BC^^^g + ε_t .¹ One lead and one lag are included
in order to take short sectoral leads or lags into account. The EU average only includes Belgium, Denmark, Germany, Spain, France, Italy,
Finland, Sweden and the UK to guarantee comparability between the 1980s and 1990s.

1 As stressed by Christiano and Fitzgerald (1998), op. cit., measuring co-movements of n different series by computing the correlation
of each series with an aggregated one can lead to an over-optimistic interpretation in terms of synchronisation. However, the risk is
played down when n increases. Here, n=7 (number of sectors) seems sufficient to prevent biased interpretations.

in the UK and - to a lesser extent - Spain and
Sweden, while showing very low co-movement
in Germany and Italy. Public services are
generally characterised by relatively modest co-
movement, with the exception of the UK, while
co-movement for business activities was
modest only in certain countries (Denmark,
Italy and Sweden) but relatively high in others
(UK, Belgium and France).

There was some increase in co-movement in the
1990s compared with the previous decade in
Belgium, Germany, Spain and Sweden, while in
the remaining countries the evolution was more
differentiated. In some cases, there was even a
marked decline in sectoral co-movement,
indicating special factors influencing the
particular evolution in this sector. For instance,
trade and finance in France, trade in the UK,
finance in Italy and construction in Finland
moved further away from the aggregate
business cycle in the 1990s than they were in
the 1980s.

3.5 CONCLUSION

Sectors are characterised by substantial
heterogeneity regarding their short-term output
volatility. Moreover, important changes in
sectoral output volatility have been documented
in this section. As these sectoral characteristics
are of potential importance for the pattern of
aggregate business cycle behaviour among EU
countries, it has been evaluated to what extent
these characteristics - together with different
patterns of sectoral specialisation across EU
countries - have influenced business cycle
developments of Member States and business
cycle synchronisation across the euro area and
the EU.

ECB

Occasional Paper No. 19
July 2004

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