While consistent and significant differences in
sectoral volatility have been documented,
changes in the sectoral composition have played
only a minor role in influencing aggregate
volatility. Rather, decreased aggregate output
volatility has been driven by across-the-board
decreases of sectoral output volatility, even
though individual sectors, and services in
particular - such as business activities and
finance - have seen particularly important
developments in declining output volatility.
Moreover, business cycle synchronisation has
increased over the last two decades following
more pronounced economic integration, mainly
in some of the business services sectors. In
particular, it has been shown that the more
exposed sectors have contributed to increased
business cycle synchronisation across Member
States.
In addition, part of the increase in business
cycle synchronisation has been brought about
by an increase in the similarity of sectoral
dynamics (sectoral co-movement), which is
likely to mitigate the effect of sector-specific
shocks on country volatility profiles. This has
helped to reduce the influence of cross-country
differences in sectoral specialisation on EU
countries’ business cycle developments. Hence,
despite the fact that sectoral specialisation
exposes member countries to different
asymmetric shocks that have the potential to
cause country-specific business cycle patterns,
economic integration and sectoral co-movement
have contributed to a convergence towards a
common business cycle across euro area
countries, and to a lesser extent, also across EU
countries.
48
ECB
Occasional Paper No. 19
July 2004