Convergence Of Shocks And Trade In The Enlarged European Union
AbstractThis paper explores the relation between trade flows and cross-country symmetry of supply and demand shocks using data from the EU27 countries. Increased bilateral trade intensity is found to have a positive impact on the correlation of both demand and supply shocks. Intra-industry trade is found to be positively linked to correlations of supply-side shocks but negatively linked to correlation of demand shocks. Our results thus provide support for the argument that aggregate demand spill-overs and intra-industry trade, rather than specialization, dominate in the process through which trade flows affect the cross-country transmission of shocks in Europe. At the same time, our estimates suggest that monetary-policy convergence in Europe (the circulation of the euro), while having increased symmetry of supply-side shocks, has had no direct favourable impact on symmetry of demand shocks. By contrast, the process of fiscal-policy convergence is found to have resulted in more correlated demand shocks across the EU member states. Classification-JEL: F4, F15, E32
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Bibliographic InfoPaper provided by The Rimini Centre for Economic Analysis in its series Working Paper Series with number 15-08.
Date of creation: Jan 2008
Date of revision: Jan 2008
convergence of shocks; trade flows; European integration; cyclical macroeconomic fluctuations;
Find related papers by JEL classification:
- F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance
- F15 - International Economics - - Trade - - - Economic Integration
- E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
This paper has been announced in the following NEP Reports:
- NEP-ALL-2008-07-30 (All new papers)
- NEP-CBA-2008-07-30 (Central Banking)
- NEP-EEC-2008-07-30 (European Economics)
- NEP-MAC-2008-07-30 (Macroeconomics)
- NEP-OPM-2008-07-30 (Open Economy Macroeconomic)
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