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The Role of Heterogeneity in Creating Imbalances in the Euro Area

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  • Cristina PUIU

    () (Faculty of Economics and Business Administration, “Alexandru Ioan Cuza” University,)

Abstract

The aim of this paper is to assess the importance played by economic divergences in the current crisis of the euro area. Since the introduction of the single currency there were many debates regarding the heterogeneity of the countries that adopted it. Heterogeneity represents an impediment for the smooth adjustment in the event of asymmetric shocks. The optimal currency theory was the first to present the adjustment mechanisms. In order to quantify the influence of structural diversity on the disturbances in the euro area, we have analyzed the evolution of standard deviation for some of the key indicators. This study will provide a clear understanding of the factors that caused imbalances in the euro area. It is common to draw conclusions upon isolated factors that led to the present financial crisis and to find extreme solutions like the collapse of the monetary union in Europe. This article shows that analyzing the structure of the union gives an appropriate understanding of the mistakes that have been made.

Suggested Citation

  • Cristina PUIU, 2012. "The Role of Heterogeneity in Creating Imbalances in the Euro Area," EuroEconomica, Danubius University of Galati, issue 1(31), pages 77-85, February.
  • Handle: RePEc:dug:journl:y:2012:i:1:p:77-85
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    File URL: http://journals.univ-danubius.ro/index.php/euroeconomica/article/view/1240/1072
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    References listed on IDEAS

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    1. Frankel, Jeffrey A & Rose, Andrew K, 1998. "The Endogeneity of the Optimum Currency Area Criteria," Economic Journal, Royal Economic Society, vol. 108(449), pages 1009-1025, July.
    2. Jondeau, Eric & Sahuc, Jean-Guillaume, 2008. "Testing heterogeneity within the euro area," Economics Letters, Elsevier, vol. 99(1), pages 192-196, April.
    3. Slanicay Martin, 2011. "Structural Differences and Asymmetric Shocks between the Czech Economy and the Euro Area 12," Review of Economic Perspectives, De Gruyter Open, vol. 11(3), pages 168-192, January.
    4. Andros Gregoriou & Alexandros Kontonikas & Alberto Montagnoli, 2011. "Euro Area Inflation Differentials: Unit Roots and Nonlinear Adjustment," Journal of Common Market Studies, Wiley Blackwell, vol. 49(3), pages 525-540, May.
    5. Klaus Desmet, 2002. "Asymmetric Shocks, Risk Sharing, and the Latter Mundell," Working Papers 0222, Banco de España;Working Papers Homepage.
    6. Schnabl, Gunther, 2008. "Exchange rate volatility and growth in small open economies at the EMU periphery," Economic Systems, Elsevier, vol. 32(1), pages 70-91, March.
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