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Asymmetric Shocks, Structural Rigidities and Adjustment Capability in EMU - A Review


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  • Sotiris Theodoropoulos
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    The high degree of sustainable nominal convergence between EMU member states have not implied a corresponding degree of real and structural convergence. Still existing structural asymmetries in the monetary union, which is not an Optimum Currency Area, are bound to broaden due to continuous enlargement of Europe, giving rise to various kinds of shocks and divergences, poor economic performance in some member countries and to Europe as a whole. This paper examines the potential sources of asymmetries, which to a large extend determine the exposure to asymmetric shocks, or asymmetrical effects stemming from symmetric shocks. We also analyze available adjustment mechanisms and appropriate policy instruments in EMU’s economic reality. Using a set of economic indicators we investigate how some product and labor market rigidities affect in an adverse way macroeconomic performance in EMU. Having restricted the fiscal room for maneuver under the Stability and Growth Pact, existing asymmetries and structural rigidities call for a speed-up of structural reforms, as the only way to growth and prosperity.

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    Article provided by European Research Studies Journal in its journal European Research Studies Journal.

    Volume (Year): VIII (2005)
    Issue (Month): 3-4 ()
    Pages: 3-20

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    Handle: RePEc:ers:journl:v:viii:y:2005:i:3-4:p:3-20

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    Keywords: EMU; optimum currency areas; asymmetries; asymmetric shocks; adjustment capability; product and labor market regulation;

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    1. Andrew Hughes Hallett & Laura Piscitelli, 1999. "EMU in Reality: The Effect of a Common Monetary Policy on Economies with Different Transmission Mechanisms," Empirica, Springer, Springer, vol. 26(4), pages 337-358, December.
    2. Hughes Hallett, Andrew & Viegi, Nicola, 2001. "Labour Market Reform and Monetary Policy in EMU: Do Asymmetries Matter?," CEPR Discussion Papers, C.E.P.R. Discussion Papers 2979, C.E.P.R. Discussion Papers.
    3. Wyplosz, Charles, 1989. "Asymmetry in the EMS: Intentional or systemic?," European Economic Review, Elsevier, Elsevier, vol. 33(2-3), pages 310-320, March.
    4. Buti, Marco & Franco, Daniele & Ongena, Hedwig, 1998. "Fiscal Discipline and Flexibility in EMU: The Implementation of the Stability and Growth Pact," Oxford Review of Economic Policy, Oxford University Press, Oxford University Press, vol. 14(3), pages 81-97, Autumn.
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