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Macroeconomic Shocks in Euroland vs. the UK: Supply, Demand, or Nominal?

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  • Michael Funke

Abstract

The article uses a structural vector autoregressive (SVAR) model under some well agreed-on long-run neutrality assumption to identify relative supply, relative demand, and relative nominal shocks in Euroland vs. the UK. The empirical results indicate that most of the variation in relative output is caused by supply shocks while the shocks driving the real ECU exchange rate are mainly non-monetary demand shocks in nature. Therefore, the loss of the exchange rate as a shock absorber will not be great for the UK.
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Suggested Citation

  • Michael Funke, 2000. "Macroeconomic Shocks in Euroland vs. the UK: Supply, Demand, or Nominal?," EUI-RSCAS Working Papers 37, European University Institute (EUI), Robert Schuman Centre of Advanced Studies (RSCAS).
  • Handle: RePEc:erp:euirsc:p0032
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Katie Farrant & Gert Peersman, 2005. "Accounting for the source of exchange rate movements: new evidence," Bank of England working papers 269, Bank of England.
    2. Sfia, Mohamed Daly, 2006. "Tunisia: Sources Of Real Exchange Rate Fluctuations," MPRA Paper 3129, University Library of Munich, Germany.
    3. Doojav, Gan-Ochir, 2011. "The role of exchange rate in Mongolia: A shock absorber or a source of shocks?," MPRA Paper 72145, University Library of Munich, Germany, revised Nov 2011.
    4. Artis, Michael & Ehrmann, Michael, 2006. "The exchange rate - A shock-absorber or source of shocks? A study of four open economies," Journal of International Money and Finance, Elsevier, vol. 25(6), pages 874-893, October.
    5. 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.
    6. Raoul Lättemäe, 2004. "Analysis of Asymmetric Shocks among the EU Members and Accession Countries: Can the Baltic Sea Cluster Be Distinguished?," University of Tartu - Faculty of Economics and Business Administration,in: Modelling the Economies of the Baltic Sea Region, volume 17, chapter 4, pages 116-137 Faculty of Economics and Business Administration, University of Tartu (Estonia).
    7. Gottschalk, Jan & Döpke, Jörg & Kamps, Christophe, 2001. "Sources of Euro Real Exchange Rate Fluctuations: What Is Behind the Euro Weakness in 1999-2000?," Kiel Working Papers 1050, Kiel Institute for the World Economy (IfW).
    8. Bjarni G. Einarsson & Gudjón Emilsson & Svava J. Haraldsdóttir & Thórarinn G. Pétursson & Rósa B. Sveinsdóttir, 2013. "On our own? The Icelandic business cycle in an international context," Economics wp63, Department of Economics, Central bank of Iceland.
    9. Grace H.Y. Lee, 2009. "Aggregate Shocks Decomposition For Eight East Asian Countries," Monash Economics Working Papers 17-09, Monash University, Department of Economics.
    10. G. Peersman, 2005. "The relative importance of symmetric and asymmetric shocks and the determination of the exchange rate," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 05/286, Ghent University, Faculty of Economics and Business Administration.
    11. Farrant, Katie & Peersman, Gert, 2006. "Is the Exchange Rate a Shock Absorber or a Source of Shocks? New Empirical Evidence," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 38(4), pages 939-961, June.
    12. Agnieszka Stazka, 2006. "Sources of Real Exchange Rate Fluctuations in Central and Eastern Europe – Temporary or Permanent?," CESifo Working Paper Series 1876, CESifo Group Munich.
    13. Hilde Bjørnland, 2004. "The Role of the Exchange Rate as a Shock Absorber in a Small Open Economy," Open Economies Review, Springer, vol. 15(1), pages 23-43, January.
    14. Coricelli, Fabrizio & Jazbec, Bostjan & Masten, Igor, 2006. "Exchange rate pass-through in EMU acceding countries: Empirical analysis and policy implications," Journal of Banking & Finance, Elsevier, vol. 30(5), pages 1375-1391, May.
    15. Ensar Yilmaz, 2012. "The Exchange Rate: A Shock Absorber or Source of Shocks in Turkey?," International Economic Journal, Taylor & Francis Journals, vol. 26(1), pages 175-188, October.
    16. Nabil Ben Arfa, 2009. "Analysis of Shocks Affecting Europe: EMU and some Central and Eastern Acceding Countries," Panoeconomicus, Savez ekonomista Vojvodine, Novi Sad, Serbia, vol. 56(1), pages 21-38, March.
    17. Dermot Hodson, 2003. "The Exchange Rate as an Adjustment Mechanism - A Structural VAR Approach to the Case of Ireland," The Economic and Social Review, Economic and Social Studies, vol. 34(2), pages 151-172.

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