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Growth and Inflation Dispersions in EMU: Reasons, the Role of Adjustment Channels, and Policy Implications

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Emil Stavrev

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Abstract

This paper's analysis of growth and inflation dispersions in the euro area reveals several findings. First, these dispersions have declined appreciably since EMU; remaining dispersions are small but persistent, relating mainly to country-specific shocks, not differences in the transmission of common shocks. Second, the different behavior of interest rates just before and after the introduction of the euro has contributed significantly to growth dispersions. However, this has been a one-off shock whose effects, particularly on construction, should be declining over time. Third, financial sector integration could do much more to insure countries against shocks and increase consumption smoothing.

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Paper provided by International Monetary Fund in its series IMF Working Papers with number 07/167.

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Length: 26 pages
Date of creation: 17 Jul 2007
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Handle: RePEc:imf:imfwpa:07/167

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Related research
Keywords: Working Paper ; Economic growth ; Inflation ; Production ; European Economic and Monetary Union ; Interest rates ; Financial integration ; Risk management ; Consumption ;

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This paper has been announced in the following NEP Reports: 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.:
  1. Carlos Marinheiro, 2003. "Output Smoothing in EMU and OECD: Can We Forego Government Contribution? A risk sharing approach," GEMF Working Papers 2003-02, GEMF - Faculdade de Economia, Universidade de Coimbra. [Downloadable!]
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  2. Zsolt Darvas & Andrew K. Rose & Gyorgy Szapary, 2005. "Fiscal Divergence and Business Cycle Synchronization: Irresponsibility is Idiosyncratic," NBER Chapters, in: NBER International Seminar on Macroeconomics 2005 National Bureau of Economic Research, Inc. [Downloadable!]
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  3. Domenico Giannone & Lucrezia Reichlin, 2006. "Trends and cycles in the euro area: how much heterogeneity and should we worry about it?," Working Paper Series 595, European Central Bank. [Downloadable!]
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  4. Kalemli-Ozcan, Sebnem & Sorensen, Bent E & Yosha, Oved, 2004. "Asymmetric Shocks and Risk Sharing in a Monetary Union: Updated Evidence and Policy Implications for Europe," CEPR Discussion Papers 4463, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  5. 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, Economics Department. [Downloadable!]
  6. Rogers, John H., 2007. "Monetary union, price level convergence, and inflation: How close is Europe to the USA?," Journal of Monetary Economics, Elsevier, vol. 54(3), pages 785-796, April. [Downloadable!] (restricted)
  7. Gali, Jordi & Gertler, Mark, 1999. "Inflation dynamics: A structural econometric analysis," Journal of Monetary Economics, Elsevier, vol. 44(2), pages 195-222, October. [Downloadable!] (restricted)
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  8. Barry Eichengreen & Charles Wyplosz, 1998. "The Stability Pact: more than a minor nuisance?," Economic Policy, CEPR, CES, MSH, vol. 13(26), pages 65-113, 04. [Downloadable!] (restricted)
  9. Breitung, Jörg & Eickmeier, Sandra, 2005. "Dynamic factor models," Discussion Paper Series 1: Economic Studies 2005,38, Deutsche Bundesbank, Research Centre. [Downloadable!]
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Cited by:
(explanations, 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.)

  1. Sandra Eickmeier & Katharina Moll, 2009. "The global dimension of inflation - evidence from factor-augmented Phillips curves," Working Paper Series 1011, European Central Bank. [Downloadable!]
  2. Crowley, Patrick, 2008. "One Money, Several Cycles? Evaluation of European business cycles using model-based cluster analysis," Research Discussion Papers 3/2008, Bank of Finland. [Downloadable!]
  3. Emil Stavrev & Jörg Decressin, 2009. "Current Accounts in a Currency Union," IMF Working Papers 09/127, International Monetary Fund. [Downloadable!]
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