CONVERGENCE OF REGIONAL ECONOMIC CYCLES IN TURKEY Hasan Engin Duran City and Regional Planning Department, Izmir Institute of Technology, _ Izmir, Turkey Dissimilar economic fluctuations and asymmetric shocks across the regions of a country might create severe policy distortions that, under these circumstances, aggregate policy interventions (such as taxation and interest rates), are likely to be sub‐optimal for at least a fraction of the regions. For instance, monetary policy can hardly satisfy the needs of all regions when some of the regions are experiencing a boom while others are in a recession phase. For these reasons, similarity of regional business cycles and their convergence are highly desirable from a policy viewpoint. The aim of this paper is, therefore, to provide empirical evidence and policy implications in that context. In particular, I analyze business cycle correlations across Turkish provinces and the tendency of these cycles to converge over the period of analysis between 1975–2000 and 2004–2008 (for Nomenclature of Territorial Units for Statistics [NUTS]‐2 regions). I find that regional business cycle asymmetries have tended to decrease in recent decades. This result, although it seems to provide evidence in favor of rising correlations, shows that the convergence process is rather slow and there still exist asymmetries across the regional business cycles. 1. Introduction Dissimilar economic fluctuations and asymmetric shocks across the regions of a country might create severe policy distortions that, under these circumstances, aggregate policy interventions (such as taxation and interest rates), are likely to be sub‐optimal for at least a fraction of the regions (Mundel 1961; Frankel & Rose 1998; Weyerstrass et al. 2011). For instance, monetary policy can hardly satisfy the needs of all regions when some of the regions are experiencing a boom while others are in a recession phase. For these reasons, similarity of regional business cycles and their convergence are highly desirable from a policy viewpoint. With regard to the existing literature in this field, the majority of studies focus on the similarity of business cycles within the European Union. However, scholars are far from reaching a consensus. On the one hand, several authors argue that co‐movements of the business cycles within Europe have tended to increase recently, particularly after the introduction of the European Exchange Rate Mechanism (Fatás 1997; Montoya & De Haan 2008; Ferreira‐Lopes & Sequeira 2011). On the other hand, others adopt a pessimistic RURDS Vol. 25, No. 3, November 2013 doi: 10.1111/rurd.12015 152 © The Applied Regional Science Conference (ARSC)/Wiley Publishing Asia Pty Ltd 2013