Cross country macroeconomic heterogeneity in EMU

The objective of this paper is to explore the size and normative implications of macroeconomic discrepancies between EMU countries. Available data and empirical work show that EMU countries display noticeable heterogeneity in terms of economic development, exposure to shocks and adjustment mechanisms. But this does not seem to prevent a relatively high degree of similarity in their cyclical patterns. And the remaining discrepancies do not seem much influenced by monetary and exchange rate policies. Indeed, EMU makes a limited difference in terms of the cross country effects of common shocks. It may nevertheless have an influence on the ability of countries to absorb idiosyncratic shocks. The problem is therefore not a deficit of homogeneity so much as a possible deficit of flexibility for each economy to adjust smoothly to country specific developments.