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Macroeconomic Asymmetry in the European Union: The Difference Between New and Old Members

  • Demyanyk, Yuliya
  • Volosovych, Vadym

We study the degree of output and consumption asymmetry for the ten new and fifteen original European Union members during the period 1994–2001. We establish basic stylized facts about macroeconomic asymmetry from correlations of GDP and consumption growth rates with corresponding aggregates. In addition, we determine which countries would potentially gain the most from international risk sharing within the European Union employing a utility-based measure suggested by Kalemli-Ozcan, Sørensen and Yosha (2001). We find much higher potential gains for the new members compared to those for original EU-15 countries. In particular, economies with the most volatile and counter-cyclical output growth – Czech Republic, Slovak Republic, and the three Baltic states – might benefit the most. We show that EU enlargement would not reduce the welfare of EU-15 members. If these countries move towards full risk sharing their potential welfare gains after enlargement would be virtually unchanged.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 4847.

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Date of creation: Jan 2005
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Handle: RePEc:cpr:ceprdp:4847
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  1. David K. Backus & Patrick J. Kehoe & Finn E. Kydland, 1991. "International real business cycles," Staff Report 146, Federal Reserve Bank of Minneapolis.
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  7. Sebnem Kalemli-Ozcan & Bent E. Sorensen & Oved Yosha, 1999. "Industrial specialization and the asymmetry of shocks across regions," Research Working Paper 99-06, Federal Reserve Bank of Kansas City.
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