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Are PIIGS so Different? An Empirical Analysis of Demand and Supply Shocks

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  • Irina SyssoyevaMasson

    () (CEMAFI International Association; University of Savoy Mont Blanc, France)

  • João Sousa Andrade

    () (Corresponding author CEMAFI International Association; University of Coimbra, Department of Economics, Group for Monetary and Financial Studies (GEMF), Portugal)

Abstract

This paper analyses responses to supply and demand shocks in PIIGS countries. We compare the results obtained for PIIGS with those of Germany and the USA, and also with those of France, which despite its government’s efforts demonstrate relatively poor recent economic performance. The main objective of this paper is to establish whether it is still reasonable to consider PIIGS as a group apart. Our methodological strategy is based on the Okun Law (OL) which is incorporated in a Structural Vector Autoregression (SVAR) model with Blanchard-Quah (BQ) restrictions. We address two drawbacks that usually present in the OL: the interdependency problem and the non-stationarity problem. By using a non-parametric representation of OL, we identify the heterogeneity between countries. We build stable VAR models for each of the economies and use the BQ SVAR impulses to analyse the importance of contemporary and long-run effects of supply and demand shocks. The main conclusion of this paper is that it does not make any sense today to identify PIIGS as a separate group. Additionally, a country that stands out from our analysis is France. The question can thus be posed that if “PIIGS” signifies “countries with poor economic performances” then should not France also belong to this group?

Suggested Citation

  • Irina SyssoyevaMasson & João Sousa Andrade, 2017. "Are PIIGS so Different? An Empirical Analysis of Demand and Supply Shocks," Panoeconomicus, Savez ekonomista Vojvodine, Novi Sad, Serbia, vol. 64(2), pages 189-222, March.
  • Handle: RePEc:voj:journl:v:64:y:2017:i:2:p:189-222
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    References listed on IDEAS

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    More about this item

    Keywords

    Okun Law; Non-parametric representation; Stationarity; SVAR; Stability; Impulses;

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • J21 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Force and Employment, Size, and Structure

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