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The (A)Symmetry of shocks in the EMU

  • Bastiaan A. Verhoef

A disadvantage of EMU is the lack of national monetary policy to absorb country-specific shocks. The seriousness of this depends on the availability of alternative adjustment mechanisms, as well as on the asymmetry of the demand and supply shocks within EMU. Previous empirical research on the asymmetry of shocks mainly focused on correlation coefficients between the shocks for some specific period. Therefore, it does not give a proper picture of the development of the symmetry of shocks in the EMU. The aim of this paper is to analyse empirically whether shocks in EMU became more or less symmetric. By using a moving principal component analysis the development of the symmetry of shocks will be much clearer. The results suggest that within EMU the symmetry of demand shocks increased during the last two decades, whilst the symmetry of the supply shocks also rose slightly. This suggested convergence of shocks helps the ECB to determine its monetary stance for the entire Euro zone.

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File URL: http://www.dnb.nl/binaries/staff106_tcm46-146883.pdf
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Paper provided by Netherlands Central Bank in its series DNB Staff Reports (discontinued) with number 106.

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Length: 37 pages
Date of creation: 2003
Date of revision:
Handle: RePEc:dnb:staffs:106
Contact details of provider: Postal: Postbus 98, 1000 AB Amsterdam
Web page: http://www.dnb.nl/en/

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  2. Helpman, Elhanan, 1998. "The Structure of Foreign Trade," CEPR Discussion Papers 2020, C.E.P.R. Discussion Papers.
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  9. Olivier Jean Blanchard & Danny Quah, 1988. "The Dynamic Effects of Aggregate Demand and Supply Disturbances," NBER Working Papers 2737, National Bureau of Economic Research, Inc.
  10. Funke, Michael, 1997. "The Nature of Shocks in Europe and in Germany," Economica, London School of Economics and Political Science, vol. 64(255), pages 461-69, August.
  11. Maria Demertzis & Andrew Hallett & Ole Rummel, 2000. "Is the European union a natural currency area, or is it held together by policy makers?," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 136(4), pages 657-679, December.
  12. Cohen, Daniel & Wyplosz, Charles, 1989. "The European Monetary Union: An Agnostic Evaluation," CEPR Discussion Papers 306, C.E.P.R. Discussion Papers.
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