Some empirical tests on the integration of economic activity between the euro area and the accession countries

This note looks ata the correlation of short-term business cycles in the euro area and the Eu accession countries. This issue is assessed with the help of vector autoregressive models. There are clear differences in the degree of correlation between acces-sion countries. For Hungary and Slovenia, euro area shocks can explain a large share of variation in industrial production, while for some countries this influence is much smaller. For the latter countries, the results imly that joiniing the monetary union could entail reasonable large costs, unless their business cycles converge closer to the euro area cycle. Generally, for smaller countries the relative influence of the euro area business cycle is larger. Also, it is found that the most advanced acces-sion countries are at least as integrated with the euro area business cycle as some small present member countries of the mo-netary union.