The international dimension of an incomplete EMU

Demosthenes Ioannou, Livio Stracca and Maria Sole Pagliari

No 2459, Working Paper Series from European Central Bank

Abstract: This paper quantifies the economic influence that shocks to EMU cohesion, which in turn reflect the incomplete nature of the monetary union, have on the rest of the world. Disentangling euro area stress shocks and global risk aversion shocks based on a combination of sign, magnitude and narrative restrictions in a daily Structural Vector Autoregression (VAR) model with financial variables. We find that the effects of euro area stress shocks are significant not only for the euro area but also for the rest of the world. Notably, an increase in euro area stress entails a slowdown of economic activity in the rest of the world, as well as a fall in imports/exports of both the euro area and the rest of the world. A decrease in euro area stress has somewhat more widespread beneficial effects on both economic performance and global trade activity. JEL Classification: C23, C32, F02, F33

Keywords: Bayesian SVAR; Economic and Monetary Union; narrative sign restrictions; panel local projections (search for similar items in EconPapers)
Date: 2020-08
New Economics Papers: this item is included in nep-eec and nep-opm
Note: 1056819
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:ecb:ecbwps:20202459

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