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

  • Michael Funke

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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Paper provided by European University Institute (EUI), Robert Schuman Centre of Advanced Studies (RSCAS) in its series EUI-RSCAS Working Papers with number 37.

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Date of creation: 15 Sep 2000
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Handle: RePEc:erp:euirsc:p0032
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  1. Clarida, Richard & Galí, Jordi, 1994. "Sources of Real Exchange Rate Fluctuations: How Important are Nominal Shocks?," CEPR Discussion Papers 951, C.E.P.R. Discussion Papers.
  2. Matthew B. Canzoneri & Javier Vallés & José Viñals, 1996. "Do Exchange Rate Move to Address International Macroeconomic Imbalances?," Banco de Espa�a Working Papers 9626, Banco de Espa�a.
  3. Perron, P., 1994. "Further Evidence on Breaking Trend Functions in Macroeconomic Variables," Cahiers de recherche 9421, Centre interuniversitaire de recherche en économie quantitative, CIREQ.
  4. Ahmed, S. & Ickes, B. & Wang, P. & Yoo, S., 1989. "International Business Cycles," Papers 7-89-4, Pennsylvania State - Department of Economics.
  5. Keating, John W., 1990. "Identifying VAR models under rational expectations," Journal of Monetary Economics, Elsevier, vol. 25(3), pages 453-476, June.
  6. Ahmed, Shaghil & Park, Jae Ha, 1994. "Sources of macroeconomic fluctuations in small open economies," Journal of Macroeconomics, Elsevier, vol. 16(1), pages 1-36.
  7. De Grauwe, Paul & Vanhaverbeke, Wim, 1991. "Is Europe an Optimum Currency Area? Evidence from Regional Data," CEPR Discussion Papers 555, C.E.P.R. Discussion Papers.
  8. Robert G. King & Charles I. Plosser & James H. Stock & Mark W. Watson, 1987. "Stochastic Trends and Economic Fluctuations," NBER Working Papers 2229, National Bureau of Economic Research, Inc.
  9. Simon Wren-Lewis & Rebecca Driver, 1998. "Real Exchange Rates for the Year 2000," Peterson Institute Press: Policy Analyses in International Economics, Peterson Institute for International Economics, number pa54, 03.
  10. Neumann, Manfred J.M. & von Hagen, Jürgen, 1992. "Real Exchange Rates Within and Between Currency Areas: How Far Away is EMU?," CEPR Discussion Papers 660, C.E.P.R. Discussion Papers.
  11. Alun H. Thomas, 1997. "Is the Exchange Rate a Shock Absorber? the Case of Sweden," IMF Working Papers 97/176, International Monetary Fund.
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