Advanced Search
MyIDEAS: Login

Macroeconomic Differentials and Adjustment in the Euro Area

Contents:

Author Info

  • Iulia Traistaru-Siedschlag

    (Economic and Social Research Institute (ESRI))

Abstract

There has recently been increased research and policy interest in the divergent macroeconomic performance in the European Economic and Monetary Union (EMU). Understanding the underlying factors of macroeconomic differentials, the source and transmission of shocks and the adjustment process in the euro area is important to appropriate economic policy in the EMU. In a monetary union, the single monetary policy can only address common shocks. In the absence of nominal interest and exchange rates as policy instruments, to adjust to asymmetric shocks – country specific shocks or idiosyncratic effects of common shocks, member countries have to resort to remaining tools of economic policy. In theory, the adjustment to asymmetric shocks and return to equilibrium can take place through four channels: a) market – driven price and output adjustment; b) policy induced fiscal adjustment; c) risk-sharing against country-specific shocks through fiscal transfers and financial integration; d) labour mobility. Temporary inflation and output growth differentials are likely in a common currency area since prices and output adjustment is required to absorb shocks. In the euro area, output growth and inflation differentials are also related to the ongoing catch - up process in some of the member countries. Persistent inflation differentials can have negative effects on incomes and investment and result in divergent competitiveness and monetary conditions in the participating countries. Furthermore, inappropriate use of national fiscal policy and real exchange rate adjustment can lead to poor macroeconomic performance. The objective of this paper is to analyse macroeconomic differentials and the adjustment in the euro area so far with the aim to draw lessons and policy implications for the better functioning of the EMU and euro areaenlargement. The questions we address are the following: What do we know about macroeconomic differentials in the euro area? Are they temporary or persistent

(This abstract was borrowed from another version of this item.)

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.esri.ie/UserFiles/publications/20061103102203/WP175.pdf
File Function: First version, 2006
Download Restriction: no

Bibliographic Info

Paper provided by Economic and Social Research Institute (ESRI) in its series Papers with number WP175.

as in new window
Length: 38 pages
Date of creation: Oct 2006
Date of revision:
Handle: RePEc:esr:wpaper:wp175

Contact details of provider:
Postal: Whitaker Square, Sir John Rogerson's Quay, Dublin 2
Phone: (353-1) 863 2000
Fax: (353-1) 863 2100
Email:
Web page: http://www.esri.ie
More information through EDIRC

Related research

Keywords:

Other versions of this item:

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Böwer, Uwe & Guillemineau, Catherine, 2006. "Determinants of business cycle synchronisation across euro area countries," Working Paper Series 0587, European Central Bank.
  2. Kalemli-Ozcan, Sebnem & Sorensen, Bent E. & Yosha, Oved, 2001. "Economic integration, industrial specialization, and the asymmetry of macroeconomic fluctuations," Journal of International Economics, Elsevier, vol. 55(1), pages 107-137, October.
  3. David Rae & Paul van den Noord, 2006. "Ireland's Housing Boom: What has Driven it and Have Prices Overshot?," OECD Economics Department Working Papers 492, OECD Publishing.
  4. Fatas, Antonio, 1997. "EMU: Countries or regions? Lessons from the EMS experience," European Economic Review, Elsevier, vol. 41(3-5), pages 743-751, April.
  5. David Duffy & John FitzGerald & Ide Kearney, 2005. "Rising House Prices in an Open Labour Market," Papers WP166, Economic and Social Research Institute (ESRI).
  6. Andrea Colciago & Tiziano Ropele & V. Anton Muscatelli & Patrizio Tirelli, 2008. "The Role of Fiscal Policy in a Monetary Union: are National Automatic Stabilizers Effective?," Review of International Economics, Wiley Blackwell, vol. 16(3), pages 591-610, 08.
  7. Kpate ADJAOUTÉ & Jean-Pierre DANTHINE, 2003. "European Financial Integration and Equity Returns: A Theory-Based Assessment," FAME Research Paper Series rp84, International Center for Financial Asset Management and Engineering.
  8. Matloob Piracha & Roger Vickerman, 2002. "Immigration, Labour Mobility and EU Enlargement," Studies in Economics 0209, Department of Economics, University of Kent.
  9. Duffy, David, 2002. "A Descriptive Analysis of the Irish Housing Market," Quarterly Economic Commentary: Special Articles, Economic and Social Research Institute (ESRI), vol. 2002(2-Summer), pages 1-16.
  10. Robert-Paul Berben & Kerstin Bernoth & Mauro Mastrogiacomo, 2007. "Households' response to wealth changes: do gins or losses make a difference?," IFC Bulletins chapters, in: Bank for International Settlements (ed.), Proceedings of the IFC Conference on "Measuring the financial position of the household sector", Basel, 30-31 August 2006 - Volume 1, volume 25, pages 145-160 Bank for International Settlements.
  11. Matthieu Lemoine, 2006. "Annex A5 : A model of the stochastic convergence between euro area business cycles," Sciences Po publications info:hdl:2441/1461, Sciences Po.
  12. Raghuram G. Rajan & Luigi Zingales, 1996. "Financial Dependence and Growth," NBER Working Papers 5758, National Bureau of Economic Research, Inc.
  13. Lane, Philip R., 2006. "The Real Effects of EMU," CEPR Discussion Papers 5536, C.E.P.R. Discussion Papers.
  14. Sebnem Kalemli-Ozcan & Bent E. Sorensen & Oved Yosha, 2004. "Asymmetric Shocks and Risk Sharing in a Monetary Union: Updated Evidence and Policy Implications for Europe," Working Papers 2004-05, Department of Economics, University of Houston.
  15. John Muellbauer & Gavin Cameron & John Muellbauer, 2006. "Was There A British House Price Bubble? Evidence from a Regional Panel," Economics Series Working Papers 276, University of Oxford, Department of Economics.
  16. Baker, Terence J. & Duffy, David & Shortall, Fergal, 1998. "Quarterly Economic Commentary, July 1998," Forecasting Report, Economic and Social Research Institute (ESRI), number QEC19982, March.
  17. Puhani, Patrick A., 1999. "Labour mobility - an adjustment mechanism in Euroland? Empirical evidence for Western Germany, France and Italy," ZEW Discussion Papers 99-47, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  18. Frankel, Jeffrey A & Rose, Andrew K, 1998. "The Endogeneity of the Optimum Currency Area Criteria," Economic Journal, Royal Economic Society, vol. 108(449), pages 1009-25, July.
  19. Charles Himmelberg & Christopher Mayer & Todd Sinai, 2005. "Assessing high house prices: bubbles, fundamentals, and misperceptions," Staff Reports 218, Federal Reserve Bank of New York.
  20. Jean Imbs, 2003. "Trade, Finance, Specialization, and Synchronization," IMF Working Papers 03/81, International Monetary Fund.
  21. Kpate Adjaouté, 2004. "Equity Returns and Integration: Is Europe Changing?," Oxford Review of Economic Policy, Oxford University Press, vol. 20(4), pages 555-570, Winter.
  22. Decressin, Jorg & Fatas, Antonio, 1995. "Regional labor market dynamics in Europe," European Economic Review, Elsevier, vol. 39(9), pages 1627-1655, December.
  23. Ana Beatriz Galv�o & Michael Artis & Massimiliano Marcellino, 2007. "The transmission mechanism in a changing world," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 22(1), pages 39-61.
  24. Valérie Chauvin & Sabine Le Bayon, 2005. "Logements : sommets atteints?," Sciences Po publications info:hdl:2441/2823, Sciences Po.
  25. John FitzGerald, 2004. "Lessons from 20 years of Cohesion," Papers WP159, Economic and Social Research Institute (ESRI).
  26. Filippo Altissimo & Pierpaolo Benigno & Diego Rodriguez Palenzuela, 2005. "Long-Run Determinants of Inflation Differentials in a Monetary Union," NBER Working Papers 11473, National Bureau of Economic Research, Inc.
  27. Marianne Baxter & Michael A. Kouparitsas, 2003. "Trade Structure, Industrial Structure, and International Business Cycles," American Economic Review, American Economic Association, vol. 93(2), pages 51-56, May.
  28. Ray Barrell & Dawn Holland, 2006. "The role of financial marketsÕ openness in the transmission of shocks in Europe," NIESR Discussion Papers 1138, National Institute of Economic and Social Research.
  29. Mongelli, Francesco Paolo & Vega, Juan Luis, 2006. "What effects is EMU having on the euro area and its member countries? An overview," Working Paper Series 0599, European Central Bank.
  30. Stanley Fischer & Ratna Sahay & Carlos A. V�gh, 2002. "Modern Hyper- and High Inflations," Journal of Economic Literature, American Economic Association, vol. 40(3), pages 837-880, September.
  31. Kpate ADJAOUTE & Jean-Pierre DANTHINE, 2004. "Equity Returns and Integration: Is Europe Changing?," FAME Research Paper Series rp117, International Center for Financial Asset Management and Engineering.
  32. Scott Adams & David Neumark, 2003. "Living Wage Effects: New and Improved Evidence," NBER Working Papers 9702, National Bureau of Economic Research, Inc.
  33. Alejandro Micco & Ernesto Stein & Guillermo OrdoÒez, 2003. "The currency union effect on trade: early evidence from EMU," Economic Policy, CEPR & CES & MSH, vol. 18(37), pages 315-356, October.
  34. Philip Lane & Sébastien Wälti, 2006. "The Euro and Financial Integration," The Institute for International Integration Studies Discussion Paper Series iiisdp139, IIIS.
  35. Nicholai Benalal & Juan Luis Diaz del Hoyo & Beatrice Pierluigi & Nikiforos Vidalis, 2006. "Output growth differentials across the euro area countries - some stylised facts," Occasional Paper Series 45, European Central Bank.
  36. Jürgen von Hagen & Andrew Hughes Hallett & Rolf Strauch, 2001. "Budgetary Consolidation in EMU," European Economy - Economic Papers 148, Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission.
  37. Alan Ahearne & Jean Pisani-Ferry, 2006. "The Euro: only for the agile," Policy Briefs 42, Bruegel.
  38. Giuseppe Nicoletti & Stefano Scarpetta, 2005. "Regulation and Economic Performance: Product Market Reforms and Productivity in the OECD," OECD Economics Department Working Papers 460, OECD Publishing.
  39. Lieven Baele & Annalisa Ferrando & Peter Hördahl & Elizaveta Krylova & Cyril Monnet, 2004. "Measuring financial integration in the euro area," Occasional Paper Series 14, European Central Bank.
  40. n/a, 1997. "Filtered least squares and measurement error," NIESR Discussion Papers 210, National Institute of Economic and Social Research.
  41. Peter Hoeller & Claude Giorno & Christine de la Maisonneuve, 2004. "One Money, One Cycle?: Making Monetary Union a Smoother Ride," OECD Economics Department Working Papers 401, OECD Publishing.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Traistaru-Siedschlag, Iulia, 2007. "Macroeconomic Adjustment in Ireland under the EMU," Quarterly Economic Commentary: Special Articles, Economic and Social Research Institute (ESRI), vol. 2007(1-Spring), pages 78-92.
  2. Andrzej Toroj, 2009. "Macroeconomic adjustment and heterogeneity in the euro area," National Bank of Poland Working Papers 54, National Bank of Poland, Economic Institute.
  3. Cristina Puiu, 2011. "Labour Mobility As An Adjustment Mechanism In The Euro Area," CES Working Papers, Centre for European Studies, Alexandru Ioan Cuza University, vol. 3, pages 579-591, December.
  4. Bergin, Adele & Conefrey, Thomas & FitzGerald, John & Kearney, Ide, 2009. "Recovery Scenarios for Ireland," Research Series, Economic and Social Research Institute (ESRI), number RS007.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:esr:wpaper:wp175. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Sarah Burns).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.