EconPapers    
Economics at your fingertips  
 

Optimum Currency Areas and Shock Asymmetry A Comparison of Europe and the United States

Nick Chamie, Alain DeSerres and Rene Lalonde
Additional contact information
Nick Chamie: Bank of Canada
Alain DeSerres: Bank of Canada
Rene Lalonde: Bank of Canada

Authors registered in the RePEc Author Service: Alain de Serres ()

International Finance from University Library of Munich, Germany

Abstract: The authors examine the optimality of the European Monetary Union (EMU) by estimating the degree of asymmetry in shocks affecting thirteen European countries and comparing the results to those obtained for nine U.S. regions. First, they identify supply shocks and real and nominal demand shocks by imposing restrictions on the long-term effects of these on the level of output, prices and money. This decomposition is necessary to develop a measure of shock asymmetry that is not affected by country-specific monetary policy disturbances. Next, the unobservable common and specific components of structural shocks are identified by means of state-space models. The results show that both supply and real demand shocks affecting the regions of the United States are much more symmetrical than those affecting the European countries. In Europe, only Germany and Switzerland are strongly related to the symmetrical component of shocks. The fact that Greece, Italy, Norway, Portugal and Sweden are not statistically related to the common component of the shocks suggests that they may face significant adjustment costs by participating in the European Monetary Union. However, these countries appear to be characterized by a smaller degree of nominal rigidity, which could partly offset the impact of asymmetrical shock by facilitating the adjustment. Shocks affecting France, Belgium, the Netherlands, the United Kingdom and Spain are largely asymmetrical, though statistically related to the common components.

JEL-codes: F3 F4 (search for similar items in EconPapers)
Pages: 50 pages
Date: 1994-06-22, Revised 1994-08-19
Note: 50 printed pages, Compressed PostScript file. If you have trouble viewing the complete document, please print it out on a postscript printer. Other recent Bank of Canada working papers are listed on the last page of this report.
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (20) Track citations by RSS feed

Downloads: (external link)
https://econwpa.ub.uni-muenchen.de/econ-wp/if/papers/9406/9406001.pdf (application/pdf)
https://econwpa.ub.uni-muenchen.de/econ-wp/if/papers/9406/9406001.ps.gz (application/postscript)

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:wpa:wuwpif:9406001

Access Statistics for this paper

More papers in International Finance from University Library of Munich, Germany
Bibliographic data for series maintained by EconWPA ().

 
Page updated 2020-06-18
Handle: RePEc:wpa:wuwpif:9406001