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Oil Shocks and the Euro as an Optimum Currency Area

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  • Luís Francisco Aguiar

    ()
    (Universidade do Minho - NIPE)

  • Teresa Maria Rodrigues

    ()
    (University of Minho)

  • Maria Joana Soares

    ()
    (Universidade do Minho)

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    Abstract

    SWe use wavelet analysis to study the impact of the Euro adoption on the oil price macroeconomy relation in the Euroland. We uncover evidence that the oil-macroeconomy relation changed in the past decades. We show that after the Euro adoption some countries became more similar with respect to how their macroeconomies react to oil shocks. However, we also conclude that the adoption of the common currency did not contribute to a higher degree of synchronization between Portugal, Ireland and Belgium and the rest of the countries in the Euroland. On the contrary, in these countries the macroeconomic reaction to an oil shock became more asymmetric after adopting the Euro.

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    File URL: http://www3.eeg.uminho.pt/economia/nipe/docs/2012/NIPE_WP_07_2012.pdf
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    Bibliographic Info

    Paper provided by NIPE - Universidade do Minho in its series NIPE Working Papers with number 07/2012.

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    Date of creation: 2012
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    Handle: RePEc:nip:nipewp:07/2012

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    Postal: Núcleo de Investigação em Políticas Económicas, Escola de Economia e Gestão, Universidade do Minho, P-4710-057 Braga, Portugal
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    Related research

    Keywords: Oil prices; Business cyles; the Euro; Optimum Currency Areas; Wavelet analysis;

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    References

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    1. Marianne Baxter & Michael Kouparitsas, 2004. "Determinants of business cycle comovement: a robust analysis," Working Paper Series WP-04-14, Federal Reserve Bank of Chicago.
    2. Jeffrey A. Frankel & Andrew K. Rose, 1996. "The Endogeneity of the Optimum Currency Area Criteria," NBER Working Papers 5700, National Bureau of Economic Research, Inc.
    3. Camacho, Maximo & Pérez-Quirós, Gabriel & Sáiz Matute, Lorena, 2005. "Are European Business Cycles Close Enough to be Just One?," CEPR Discussion Papers 4824, C.E.P.R. Discussion Papers.
    4. Robert Inklaar & Richard Jong-A-Pin & Jakob de Haan, 2005. "Trade and Business Cycle Synchronization in OECD Countries - a Re-examination," CESifo Working Paper Series 1546, CESifo Group Munich.
    5. Vacha, Lukas & Barunik, Jozef, 2012. "Co-movement of energy commodities revisited: Evidence from wavelet coherence analysis," Energy Economics, Elsevier, vol. 34(1), pages 241-247.
    6. Hamilton, James D., 1996. "This is what happened to the oil price-macroeconomy relationship," Journal of Monetary Economics, Elsevier, vol. 38(2), pages 215-220, October.
    7. Gert Peersman, 2007. "The Relative Importance of Symmetric and Asymmetric Shocks: the Case of United Kingdom and Euro Area," Working Papers 136, Oesterreichische Nationalbank (Austrian Central Bank).
    8. Camacho, Maximo & Perez-Quiros, Gabriel & Saiz, Lorena, 2008. "Do European business cycles look like one?," Journal of Economic Dynamics and Control, Elsevier, vol. 32(7), pages 2165-2190, July.
    9. Engel, Charles M & Rose, Andrew K, 2001. "Currency Unions and International Integration," CEPR Discussion Papers 2659, C.E.P.R. Discussion Papers.
    10. James D. Hamilton, 2009. "Causes and Consequences of the Oil Shock of 2007-08," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 40(1 (Spring), pages 215-283.
    11. Hamilton, James D., 2003. "What is an oil shock?," Journal of Econometrics, Elsevier, vol. 113(2), pages 363-398, April.
    12. Kyrtsou, Catherine & Malliaris, Anastasios G. & Serletis, Apostolos, 2009. "Energy sector pricing: On the role of neglected nonlinearity," Energy Economics, Elsevier, vol. 31(3), pages 492-502, May.
    13. Lutz Kilian, 2008. "Exogenous Oil Supply Shocks: How Big Are They and How Much Do They Matter for the U.S. Economy?," The Review of Economics and Statistics, MIT Press, vol. 90(2), pages 216-240, May.
    14. Aguiar-Conraria, LuI´s & Joana Soares, Maria, 2011. "Business cycle synchronization and the Euro: A wavelet analysis," Journal of Macroeconomics, Elsevier, vol. 33(3), pages 477-489, September.
    15. Patrick M. Crowley & David G. Mayes, 2008. "How fused is the euro area core?: An evaluation of growth cycle co-movement and synchronization using wavelet analysis," OECD Journal: Journal of Business Cycle Measurement and Analysis, OECD Publishing,CIRET, vol. 2008(1), pages 63-95.
    16. Luís Aguiar-Conraria & Maria Soares, 2011. "Oil and the macroeconomy: using wavelets to analyze old issues," Empirical Economics, Springer, vol. 40(3), pages 645-655, May.
    17. Lutz Kilian, 2009. "Not All Oil Price Shocks Are Alike: Disentangling Demand and Supply Shocks in the Crude Oil Market," American Economic Review, American Economic Association, vol. 99(3), pages 1053-69, June.
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