The Relative Importance of Symmetric and Asymmetric Shocks: The Case of United Kingdom and Euro Area
AbstractIn this paper, we show how a simple model with sign restrictions can be used to identify symmetric and asymmetric supply, demand and monetary policy shocks in a two-country structural VAR. The results can be used to deal with several issues that are important in the OCA-literature. Whilst the method can be applied to many countries, we provide evidence for the UK versus the Euro Area which are compared versus the US as a benchmark. An important role for symmetric shocks with the Euro Area in explaining UK output fluctuations is found. However, the relative importance of asymmetric shocks, being around 20 percent in the long-run, cannot be ignored. In contrast, the degree of business cycle synchronization seems to have been higher with the US. Moreover, the historical average reaction of the policy rate to symmetric aggregate demand shocks was stronger in the UK than the Euro Area. We also confirm existing evidence of the exchange rate being an important independent source of shocks in the economy.
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Bibliographic InfoArticle provided by Department of Economics, University of Oxford in its journal Oxford Bulletin of Economics and Statistics.
Volume (Year): 73 (2011)
Issue (Month): 1 (02)
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Other versions of this item:
- Gert Peersman, 2007. "The Relative Importance of Symmetric and Asymmetric Shocks: the Case of United Kingdom and Euro Area," Working Papers 136, Oesterreichische Nationalbank (Austrian Central Bank).
- C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
- E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
- F31 - International Economics - - International Finance - - - Foreign Exchange
- F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
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- Volha Audzei & Frantisek Brazdik, 2012. "Monetary Policy and Exchange Rate Dynamics: The Exchange Rate as a Shock Absorber," Working Papers 2012/09, Czech National Bank, Research Department.
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- Michael Pedersen & Miguel Ricaurte B., 2014. "Effects of Oil-Price Shocks on The Economies Of Chile and Its Trading Partners," Journal Economía Chilena (The Chilean Economy), Central Bank of Chile, vol. 12(1), pages 38-65, April.
- Cover, James P. & Mallick, Sushanta K., 2012. "Identifying sources of macroeconomic and exchange rate fluctuations in the UK," Journal of International Money and Finance, Elsevier, vol. 31(6), pages 1627-1648.
- Michael Pedersen & Miguel Ricaurte, 2013. "Efectos de Shocks al Precio del Petróleo sobre la Economía de Chile y sus Socios Comerciales," Working Papers Central Bank of Chile 691, Central Bank of Chile.
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