IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this book chapter or follow this series

Macroeconomic Differentials and Adjustment in the Euro Area

  • Iulia Siedschlag

There has recently been increased research and policy interest in the divergent macroeconomic performance in the European Economic and Monetary Union (EMU). Understanding the underlying factors of macroeconomic differentials, the source and transmission of shocks and the adjustment process in the euro area is important to appropriate economic policy in the EMU. In a monetary union, the single monetary policy can only address common shocks. In the absence of nominal interest and exchange rates as policy instruments, to adjust to asymmetric shocks – country specific shocks or idiosyncratic effects of common shocks, member countries have to resort to remaining tools of economic policy. In theory, the adjustment to asymmetric shocks and return to equilibrium can take place through four channels: a) market – driven price and output adjustment; b) policy induced fiscal adjustment; c) risk-sharing against country-specific shocks through fiscal transfers and financial integration; d) labour mobility. Temporary inflation and output growth differentials are likely in a common currency area since prices and output adjustment is required to absorb shocks. In the euro area, output growth and inflation differentials are also related to the ongoing catch - up process in some of the member countries. Persistent inflation differentials can have negative effects on incomes and investment and result in divergent competitiveness and monetary conditions in the participating countries. Furthermore, inappropriate use of national fiscal policy and real exchange rate adjustment can lead to poor macroeconomic performance. The objective of this paper is to analyse macroeconomic differentials and the adjustment in the euro area so far with the aim to draw lessons and policy implications for the better functioning of the EMU and euro areaenlargement. The questions we address are the following: What do we know about macroeconomic differentials in the euro area? Are they temporary or persistent?

(This abstract was borrowed from another version of this item.)

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.suerf.org/download/studies/study20083.pdf
File Function: Main Text
Download Restriction: no

as
in new window

This chapter was published in:
  • Iulia Siedschlag, 2008. "Macroeconomic Differentials and Adjustment in the Euro Area," SUERF Studies, SUERF - The European Money and Finance Forum, number 2008/3 edited by Morten Balling, November.
  • This item is provided by SUERF - The European Money and Finance Forum in its series Chapters in SUERF Studies with number 50-1.
    Handle: RePEc:erf:erfssc:50-1
    Contact details of provider: Postal: SUERF c/o OeNB, Otto-Wagner-Platz 3, A-1090 Vienna, Austria
    Phone: +43/1/404 20 7216
    Fax: +43/1/404 20 7298
    Web page: http://www.suerf.org
    Email:


    More information through EDIRC

    Order Information: Postal: SUERF c/o OeNB, Otto-Wagner-Platz 3, A-1090 Vienna, Austria
    Email:


    References listed on IDEAS
    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

    as in new window
    1. Imbs, Jean, 2003. "Trade, Finance, Specialization and Synchronization," CEPR Discussion Papers 3779, C.E.P.R. Discussion Papers.
    2. Kpate ADJAOUTÉ & Jean-Pierre DANTHINE, 2003. "European Financial Integration and Equity Returns: A Theory-Based Assessment," FAME Research Paper Series rp84, International Center for Financial Asset Management and Engineering.
    3. Frankel, Jeffrey A & Rose, Andrew K, 1996. "The Endogeneity of the Optimum Currency Area Criteria," CEPR Discussion Papers 1473, C.E.P.R. Discussion Papers.
    4. Artis, Michael J & Galvão, Ana Beatriz C & Marcellino, Massimiliano, 2003. "The Transmission Mechanism in a Changing World," CEPR Discussion Papers 4014, C.E.P.R. Discussion Papers.
    5. Fatas, Antonio, 1997. "EMU: Countries or regions? Lessons from the EMS experience," European Economic Review, Elsevier, vol. 41(3-5), pages 743-751, April.
    6. Baker, Terence J. & Duffy, David & Shortall, Fergal, 1998. "Quarterly Economic Commentary, July 1998," Forecasting Report, Economic and Social Research Institute (ESRI), number QEC19982, March.
    7. Peter Hoeller & Claude Giorno & Christine de la Maisonneuve, 2004. "One Money, One Cycle?: Making Monetary Union a Smoother Ride," OECD Economics Department Working Papers 401, OECD Publishing.
    8. Raghuram G. Rajan & Luigi Zingales, 1996. "Financial Dependence and Growth," NBER Working Papers 5758, National Bureau of Economic Research, Inc.
    9. Cameron, Gavin & Muellbauer, John & Murphy, Anthony, 2006. "Was There a British House Price Bubble? Evidence from a Regional Panel," CEPR Discussion Papers 5619, C.E.P.R. Discussion Papers.
    10. Altissimo, Filippo & Benigno, Pierpaolo & Rodriguez Palenzuela, Diego, 2005. "Long-Run Determinants of Inflation Differentials in a Monetary Union," CEPR Discussion Papers 5149, C.E.P.R. Discussion Papers.
    11. Kpate ADJAOUTE & Jean-Pierre DANTHINE, 2004. "Equity Returns and Integration: Is Europe Changing?," FAME Research Paper Series rp117, International Center for Financial Asset Management and Engineering.
    12. Alan Ahearne & Jean Pisani-Ferry, 2006. "The Euro: only for the agile," Policy Briefs 42, Bruegel.
    13. Kpate Adjaouté, 2004. "Equity Returns and Integration: Is Europe Changing?," Oxford Review of Economic Policy, Oxford University Press, vol. 20(4), pages 555-570, Winter.
    14. E. Paul Durrenberger, 2005. "Labour," Chapters, in: A Handbook of Economic Anthropology, chapter 8 Edward Elgar.
    15. David Duffy & John FitzGerald & Ide Kearney, 2005. "Rising House Prices in an Open Labour Market," Papers WP166, Economic and Social Research Institute (ESRI).
    16. Duffy, David, 2002. "A Descriptive Analysis of the Irish Housing Market," Quarterly Economic Commentary: Special Articles, Economic and Social Research Institute (ESRI), vol. 2002(2-Summer), pages 1-16.
    17. Robert Paul Berben & Kerstin Bernoth & Mauro Mastrogiacomo, 2006. "Households' Response to Wealth Changes: Do Gains or Losses make a Difference?," DNB Working Papers 090, Netherlands Central Bank, Research Department.
    18. Marianne Baxter & Michael A. Kouparitsas, 2002. "Trade structure, industrial structure, and international business cycles," Working Paper Series WP-02-30, Federal Reserve Bank of Chicago.
    19. Charles Himmelberg & Christopher Mayer & Todd Sinai, 2005. "Assessing High House Prices: Bubbles, Fundamentals and Misperceptions," Journal of Economic Perspectives, American Economic Association, vol. 19(4), pages 67-92, Fall.
    20. Scott Adams & David Neumark, 2005. "Living Wage Effects: New and Improved Evidence," Economic Development Quarterly, , vol. 19(1), pages 80-102, February.
    21. Stanley Fischer & Ratna Sahay & Carlos A. Végh Gramont, 2002. "Modern Hyper- and High Inflations," IMF Working Papers 02/197, International Monetary Fund.
    22. John FitzGerald, 2004. "Lessons from 20 years of Cohesion," Papers WP159, Economic and Social Research Institute (ESRI).
    23. Böwer, Uwe & Guillemineau, Catherine, 2006. "Determinants of business cycle synchronisation across euro area countries," Working Paper Series 0587, European Central Bank.
    24. Giuseppe Nicoletti & Stefano Scarpetta, 2005. "Regulation and Economic Performance: Product Market Reforms and Productivity in the OECD," OECD Economics Department Working Papers 460, OECD Publishing.
    25. Kalemli-Ozcan, Sebnem & Sørensen, Bent E & Yosha, Oved, 2004. "Asymmetric Shocks and Risk Sharing in a Monetary Union: Updated Evidence and Policy Implications for Europe," CEPR Discussion Papers 4463, C.E.P.R. Discussion Papers.
    26. Kalemli-Ozcan, Sebnem & Sorensen, Bent E. & Yosha, Oved, 2001. "Economic integration, industrial specialization, and the asymmetry of macroeconomic fluctuations," Journal of International Economics, Elsevier, vol. 55(1), pages 107-137, October.
    27. Andrea Colciago & Anton Muscatelli & Tiziano Ropele & Patrizio Tirelli, 2006. "The Role of Fiscal Policy in a Monetary Union: Are National Automatic Stabilizers Effective?," CESifo Working Paper Series 1682, CESifo Group Munich.
    28. Nicholai Benalal & Juan Luis Diaz del Hoyo & Beatrice Pierluigi & Nikiforos Vidalis, 2006. "Output growth differentials across the euro area countries - some stylised facts," Occasional Paper Series 45, European Central Bank.
    29. Decressin, Jörg & Fatás, Antonio, 1994. "Regional Labour Market Dynamics in Europe," CEPR Discussion Papers 1085, C.E.P.R. Discussion Papers.
    30. Lane, Philip R., 2006. "The Real Effects of EMU," CEPR Discussion Papers 5536, C.E.P.R. Discussion Papers.
    31. Alejandro Micco & Ernesto H. Stein & Guillermo Luis Ordoñez, 2003. "The Currency Union Effect on Trade: Early Evidence from EMU," IDB Publications (Working Papers) 6511, Inter-American Development Bank.
    32. Matthieu Lemoine, 2006. "Annex A5 : A model of the stochastic convergence between euro area business cycles," Sciences Po publications info:hdl:2441/1461, Sciences Po.
    33. Matloob Piracha & Roger Vickerman, 2002. "Immigration, Labour Mobility and EU Enlargement," Studies in Economics 0209, School of Economics, University of Kent.
    34. Alejandro Micco & Ernesto H. Stein & Guillermo Luis Ordoñez, 2003. "The Currency Union Effect on Trade: Early Evidence from EMU," Research Department Publications 4339, Inter-American Development Bank, Research Department.
    35. Patrick A. Puhani, 2001. "Labour Mobility: An Adjustment Mechanism in Euroland? Empirical Evidence for Western Germany, France and Italy," German Economic Review, Verein für Socialpolitik, vol. 2(2), pages 127-140, 05.
    36. Ray Barrell & Dawn Holland, 2006. "The role of financial marketsÕ openness in the transmission of shocks in Europe," NIESR Discussion Papers 1138, National Institute of Economic and Social Research.
    37. Jürgen von Hagen & Andrew Hughes Hallett & Rolf Strauch, 2001. "Budgetary Consolidation in EMU," European Economy - Economic Papers 148, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
    38. David Rae & Paul van den Noord, 2006. "Ireland's Housing Boom: What has Driven it and Have Prices Overshot?," OECD Economics Department Working Papers 492, OECD Publishing.
    39. n/a, 1997. "Filtered least squares and measurement error," NIESR Discussion Papers 210, National Institute of Economic and Social Research.
    40. Philip Lane & Sébastien Wälti, 2006. "The Euro and Financial Integration," The Institute for International Integration Studies Discussion Paper Series iiisdp139, IIIS.
    41. Lieven Baele & Annalisa Ferrando & Peter Hördahl & Elizaveta Krylova & Cyril Monnet, 2004. "Measuring financial integration in the euro area," Occasional Paper Series 14, European Central Bank.
    42. Mongelli, Francesco Paolo & Vega, Juan Luis, 2006. "What effects is EMU having on the euro area and its member countries? An overview," Working Paper Series 0599, European Central Bank.
    43. Valérie Chauvin & Sabine Le Bayon, 2005. "Logements : sommets atteints?," Sciences Po publications info:hdl:2441/2823, Sciences Po.
    Full references (including those not matched with items on IDEAS)

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    When requesting a correction, please mention this item's handle: RePEc:erf:erfssc:50-1. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Dragana Popovic)

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.