Asymmetric Shocks and Long-Run Economic Performances across Italian Regions

Rosella Giacometti () and Dino Pinelli ()
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Rosella Giacometti: Universita di Bergamo
Dino Pinelli: Fondazione ENI Enrico Mattei

No 734, Computing in Economics and Finance 1999 from Society for Computational Economics

Abstract: The literature on the optimal currency area weighs up the static gains in terms of lower transaction costs against the costs associated with adjusting asymmetric shocks when nominal exchange-rate movements are not possible. Endogenous growth theory and the new economic geography show that, in the presence of economies of scale and agglomeration, temporary asymmetric shocks can have long-lasting effects on economic performance. In this paper, we adopt an integrated approach to analyze the mechanisms of adjustment to asymmetric shocks across Italian regions and how they have contributed to the persistence of regional disparities across Italian regions. This has strong policy implications for EMU when poorer regions are locked up in the same currency area with a richer region. The paper adopts similar methodologies to those adopted by Blanchard and Katz (1992) and Bayoumi and Prasad (1997), who analyzed joint movements in employments, unemployment, wages and participation rates in US states.

Date: 1999-03-01
New Economics Papers: this item is included in nep-dev
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