The Euro Zone And Its Member States Economic Cycle Heterogeneity Study

Since2010, the European debt crisis has been a big problem. Among various reasons, a specific one should be highlighted, which is the differences of business cycles among Euro Zone and its’member countries.The foundation of Euro Zone has brought many changes to its’members. The biggest one of those is that the members lost their control of monetary policies to supranational institution, the European Central Bank (ECB). If members’ business cycles were different from each other, the single monetary policies made by ECB could not be suitable for every member, and could made the members inappropriately rely on financial policies as their macro-control policies. This kind of inappropriate reliance would cause many problems. Member countries would fluctuate more intensely and more frequently. Those uncompetitive member countries would suffer from enlargement of their financial deficits and increase of their government debts which would lead to debt crises. Fluctuations and debt crisis are not good for Euro Zone’s economic development.From this point of view, this paper focuses on business cycles of Euro Zone and its’member countries. Firstly, a summary on previous study is provided. Secondly, in order to prove the requirement of business cycles’ homogeneity, an IS-LM model of a monetary zone is used to explain possible problems brought by differences of business cycles. Thirdly, with the research of seasonally adjusted seasonal GDP in fixed prices from2000Q1-2011Q3, the heterogeneity of business cycles among Euro Zone and its’members is proven in detail. The last part is conclusions from the analysis of business cycles and some suggestions.