The Baltic states and Europe: common factors of economic activity
Ludmila Fadejeva and Aleksejs Melihovs
Abstract: Participation in the European Economic Area (EEA) and the intention to join the monetary union increased the motivation of the new Member States to achieve a high level synchronisation of economic activity with the euro area. This paper aims to characterise fl uctuations of economic activity that are common for the Baltic States, Central and Eastern European (CEE) countries, euro area countries, and Russia. For analysis of real standardised GDP growth, the dynamic factor model is employed.
The results of the study show that the Baltic economies are similar in economic development and share a common factor. After 2000, GDP growth between the Baltic States and the main euro area countries indicates growing synchronisation of economic development between these country groups.
Keywords: business cycle synchronisation, dynamic factor model, dynamic correlation
JEL Classification: E32, F20, C10