Asymmetry and Correlation of Macroeconomic Shocks:Adjustments within Heterogeneous Union

Nejma Ghnaya, Aida Bouzir () and Saloua Benammou
Additional contact information
Nejma Ghnaya: Faculty of Economics and Management, Universityof Sousse, Tunisia
Aida Bouzir: Higher Institute of Transport and Logistics, Universityof Sousse, Tunisia, Postal: Higher Institute of Transport and Logistics, Rue Khalifa El Karoui Sahloul; PO Box526 Sousse, Sousse, 4002 Tunisia.
Saloua Benammou: Faculty of Economics and Management, Universityof Sousse, Tunisia

Asian Journal of Applied Economics/ Applied Economics Journal, 2022, vol. 29, issue 1, 123-147

Abstract: This article aims to identify the asymmetry and degree of correlation of supply and demand shocks within eight European Union countries over the period 2000Q1–2020Q1. We employ a structural VAR model by decomposing macroeconomic shocks into demand and supply disturbances. We define a transformation matrix from canonical shocks to structural ones with reference to the theoretical AS-ADmodel by imposing a long-runrestriction to verify the long-run demand shock neutrality hypothesis on production. The originality of this research paper lies in the method of shock decomposition. Our results indicating the degree of asymmetry in the European countries are relatively significant. The disparities between member countries continue to grow, and recently a formof heterogeneity has appeared that includes the degree of price flexibility and rigidity.The European Union is experiencing a dichotomy. On the one hand, core countries are correctly aligned and maintain a significantly smaller degree of asymmetry of supply and demand shocks. On the other hand, peripheral countries are characterized by flagrant inequalities that have overwhelmed their local economies.However, the various measures adopted by the European authorities remain limited. We demonstrate that to resist the potential challenges of violent fluctuations, the European authorities must move towards fiscal reforms and carefully coordinate their economic policies.

Keywords: asymmetry of macroeconomic shocks; economic and monetary integration; structural VAR model; optimal currency area (search for similar items in EconPapers)
JEL-codes: C19 F15 F33 (search for similar items in EconPapers)
Date: 2022
References: Add references at CitEc
Citations:

Downloads: (external link)
https://so01.tci-thaijo.org/index.php/AEJ/article/view/247031/168375 Full text (application/pdf)
Asian Journal of Applied Economics/ Applied Economics Journal

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ris:apecjn:0069

Access Statistics for this article

Asian Journal of Applied Economics/ Applied Economics Journal is currently edited by Waleerat Suphannachart

More articles in Asian Journal of Applied Economics/ Applied Economics Journal from Kasetsart University, Faculty of Economics, Center for Applied Economic Research Center for Applied Economics Research, Faculty of Economics, Kasetsart University, Bangkok, 10900, Thailand. Contact information at EDIRC.
Bibliographic data for series maintained by Arannee Tongjankaew ().