Business Cycle Synchronization in Euro Area and GCC Countries: A Wavelets-GA Approach

In this paper, we use an Extreme Bound Analysis (EBA) and Wavelet Transformation (WT) to provide a detailed characterization of the business cycle synchronization among the countries under study, namely Euro Area and Gulf Cooperation Countries (GCC) countries. In addition, we introduce a Genetic Algorithm combined with wavelets transform to search for the best combinations of synchronization factors which offer an optimal solution for changing business cycles in order to achieve high levels of economic integration beween two groups of countries. The analyses are conducted by introducing the main determinants of business cycles existing in the literature in order to understand how they could elvolve both in time and in scale, depending on the different phases of the system construction. Globally, and unlike the Euro Area, the results show not only a considerable delay in creating an economic and financial integration in the GCC, but more importantly, a growing divergence in business cycles among the countries.