SIMILARITY MEASUREMENT OF ECONOMIC TRENDS IN CENTRAL EUROPE: BUSINESS CYCLES’ CORRELATION OF GERMANY, HUNGARY, THE CZECH REPUBLIC AND CROATIA

Following the researches done by Laurence Boone and Mathilde Maurel (1998, 1999) about monetary union of Central European countries with Germany or European Union, the research curiosity directed us to discovery of connections of Croatian and German economy, and the average of the European Union. Boone and Maurel (1999) concluded that the benefit of common monetary policy of transitional countries exceeds the costs. The paper determines only relation of Croatia towards German economy and it is made a comparison with two more progressive transitional countries. Comparison of economy has been carried out by comparison of business cycles, illustrated by unemployment cycle in observed countries. By using the Hodrick-Prescott filter in order to remove trend-components from the time series of unemployment in Germany, Hungary, the Czech Republic and Croatia, the authors proved close correlation of cyclical unemployment movement in all three countries with the cyclical unemployment movement in Germany. Besides, they suggested the similarity of reactions of business cycle in three observed transitional countries during 24 months after initial shock which had originated from German economy, and even larger similarity in reaction to shock during the first 12 months. The authors are careful because the results lead to conclusion that the observed countries in Mundell’s sense are optimal currency area. They point out the possibilty that cyclical coordination is endogenous, i.e. that it is a consequence of implicit or explicit exchange rate pegging of more progressive transitional countries to exchange rate of German mark during the most of period comprised by analysis (1992-1999). However the paper does not deny the importance of results about cyclical coordination for consideration of optimal currency regime. It is pointedout that the most important in research is the fact that to the already known results about close correlation of cyclical movements in Central Europe is added now the report for Croatia which shows close cyclical correlation of unemployment with Germany.