The (A)Symmetry of shocks in the EMU
AbstractA disadvantage of EMU is the lack of national monetary policy to absorb country-specific shocks. The seriousness of this depends on the availability of alternative adjustment mechanisms, as well as on the asymmetry of the demand and supply shocks within EMU. Previous empirical research on the asymmetry of shocks mainly focused on correlation coefficients between the shocks for some specific period. Therefore, it does not give a proper picture of the development of the symmetry of shocks in the EMU. The aim of this paper is to analyse empirically whether shocks in EMU became more or less symmetric. By using a moving principal component analysis the development of the symmetry of shocks will be much clearer. The results suggest that within EMU the symmetry of demand shocks increased during the last two decades, whilst the symmetry of the supply shocks also rose slightly. This suggested convergence of shocks helps the ECB to determine its monetary stance for the entire Euro zone.
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Bibliographic InfoPaper provided by Netherlands Central Bank in its series DNB Staff Reports (discontinued) with number 106.
Length: 37 pages
Date of creation: 2003
Date of revision:
demand and supply shocks; EMU; structural vector auto regression; principal component analysis;
Find related papers by JEL classification:
- 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
- E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General
- F15 - International Economics - - Trade - - - Economic Integration
- F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
This paper has been announced in the following NEP Reports:
- NEP-ALL-2004-03-14 (All new papers)
- NEP-IFN-2004-03-14 (International Finance)
- NEP-MON-2004-03-14 (Monetary Economics)
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