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Currency Unions, Economic Fluctuations, and Adjustment: Some New Empirical Evidence

Author

Listed:
  • Tamim Bayoumi

    (International Monetary Fund)

  • Eswar Prasad

    (International Monetary Fund)

Abstract

This paper examines the sources of disturbances to output in the United States and a set of European Union countries and analyzes labor market adjustment mechanisms in these two economic areas. Comparable data sets comprising one-digit sectoral data for eight U.S. regions and eight European countries are constructed and used to compare the degree of industrial diversification and the relative importance of different sources of shocks to output growth. Both economic areas are found to be subject to similar overall disturbances although a disaggregated perspective reveals some important differences. The major difference, however, is in labor market adjustment. Interregional labor mobility appears to be a much more important adjustment mechanism in the United States, which has a more integrated labor market than the European Union.

Suggested Citation

  • Tamim Bayoumi & Eswar Prasad, 1997. "Currency Unions, Economic Fluctuations, and Adjustment: Some New Empirical Evidence," IMF Staff Papers, Palgrave Macmillan, vol. 44(1), pages 36-58, March.
  • Handle: RePEc:pal:imfstp:v:44:y:1997:i:1:p:36-58
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    Cited by:

    1. Marelli, Enrico, 1999. "Convergence and asymmetries in the employment dynamics of the European regions," ERSA conference papers ersa99pa120, European Regional Science Association.
    2. Oscar Bajo-Rubio & Carmen Díaz-Roldán, 2007. "Vulnerability to Shocks in EMU: 1991–2004 (in English)," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 57(5-6), pages 225-234, August.
    3. Clark, Todd E. & van Wincoop, Eric, 2001. "Borders and business cycles," Journal of International Economics, Elsevier, vol. 55(1), pages 59-85, October.
    4. J.M.C. Santos Silva & Silvana Tenreyro, 2010. "Currency Unions in Prospect and Retrospect," Annual Review of Economics, Annual Reviews, vol. 2(1), pages 51-74, September.
    5. Kenen, Peter B., 2000. "Currency areas, policy domains, and the institutionalization of fixed exchange rates," LSE Research Online Documents on Economics 20170, London School of Economics and Political Science, LSE Library.
    6. Robin L. Lumsdaine & Eswar S. Prasad, 2003. "Identifying the Common Component of International Economic Fluctuations: A New Approach," Economic Journal, Royal Economic Society, vol. 113(484), pages 101-127, January.
    7. Carlino, Gerald A. & DeFina, Robert H. & Sill, Keith, 2001. "Sectoral Shocks and Metropolitan Employment Growth," Journal of Urban Economics, Elsevier, vol. 50(3), pages 396-417, November.
    8. Aksoy, Yunus & De Grauwe, Paul & Dewachter, Hans, 2002. "Do asymmetries matter for European monetary policy?," European Economic Review, Elsevier, vol. 46(3), pages 443-469, March.
    9. Ramos, Raul & Clar, Miquel & Surinach, Jordi, 2003. "National versus sectoral shocks: new evidence for the manufacturing sector in European countries," Economics Letters, Elsevier, vol. 78(2), pages 241-245, February.
    10. Grace H.Y. Lee, 2009. "Aggregate Shocks Decomposition For Eight East Asian Countries," Monash Economics Working Papers 17-09, Monash University, Department of Economics.
    11. Salvador Barrios & Marius Br¸lhart & Robert J.R. Elliott & Marianne Sensier, 2003. "A Tale of Two Cycles: Co-Fluctuations Between UK Regions and the Euro Zone," Manchester School, University of Manchester, vol. 71(3), pages 265-292, June.
    12. Marc-Alexandre Sénégas, 2010. "La théorie des zones monétaires optimales au regard de l'euro : Quels enseignements après dix années d'union économique et monétaire en Europe ?," Revue d'économie politique, Dalloz, vol. 120(2), pages 379-419.
    13. Afonso, António & Furceri, Davide, 2008. "EMU enlargement, stabilization costs and insurance mechanisms," Journal of International Money and Finance, Elsevier, vol. 27(2), pages 169-187, March.
    14. Pedro, Gomis-Porqueras & Cathy, Zhang, 2018. "Optimal Monetary and Fiscal Policy with Migration in a Currency Union," MPRA Paper 83754, University Library of Munich, Germany.
    15. António Afonso & Davide Furceri, 2007. "Business Cycle Synchronization and Insurance Mechanisms in the EU," Working Papers Department of Economics 2007/26, ISEG - Lisbon School of Economics and Management, Department of Economics, Universidade de Lisboa.
    16. Marco Leonardi, 1997. "Regional Adjustment to Employment Shocks: Italy 1960-1994," Working Papers 16, University of Milano-Bicocca, Department of Economics, revised Sep 1998.
    17. Gerardo Licandro, 2000. "Is Mercosur an Optimal Currency Area? A shock correlation perspective," Documentos de trabajo 2000004, Banco Central del Uruguay.
    18. Raul Ramos & Miquel Clar & Jordi Suri?ach, 1998. "Specialization in Europe and asymmetric shocks: Potential risks of EMU," ERSA conference papers ersa98p86, European Regional Science Association.
    19. Robin L. Lumsdaine & Eswar S. Prasad, 1997. "Identifying the Common Component in International Economic Fluctuations," NBER Working Papers 5984, National Bureau of Economic Research, Inc.
    20. Gerald A. Carlino, 2003. "A confluence of events? explaining fluctuations in local employment," Business Review, Federal Reserve Bank of Philadelphia, issue Q1, pages 6-12.
    21. Carmen Díaz-Roldán & Oscar Bajo-Rubio, "undated". "Vulnerability to Shocks in EMU: 1991-2004," Working Papers on International Economics and Finance 05-08, FEDEA.
    22. Xu, Xinpeng, 2002. "Have the Chinese provinces become integrated under reform?," China Economic Review, Elsevier, vol. 13(2-3), pages 116-133.
    23. Van Els, Peter & Peeters, Marga, 1999. "De baten van een gemeenschappelijke Europese munt
      [The benefits of a common European currency]
      ," MPRA Paper 28714, University Library of Munich, Germany.

    More about this item

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
    • J61 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Geographic Labor Mobility; Immigrant Workers

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