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Testing Heterogeneity within the Euro Area Using a Structural Multi-Country Model

  • Eric Jondeau

    ()

    (HEC Lausanne and FAME)

  • Jean-Guillaume Sahuc

    ()

    (Banque de France and EPEE, University of Evry)

In this paper, we investigate the sources of heterogeneity within the euro area. For this purpose, we build an optimization-based multi-country model (MCM) that allows different sources of heterogeneity across countries, both in terms of behavior of economic agents and in terms of asymmetry of shocks. Using Bayesian techniques, we estimate the MCM and several constrained versions of this model. We then test different sources of heterogeneity within the euro area. We show that the main source is the asymmetry of shocks affecting the different economies. In contrast, the heterogeneity of behaviors does not seem to be of empirical relevance for the euro area.

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File URL: http://epee.univ-evry.fr/RePEc/2005/05-06.pdf
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Paper provided by Centre d'Études des Politiques Économiques (EPEE), Université d'Evry Val d'Essonne in its series Documents de recherche with number 05-06.

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Length: 41 pages
Date of creation: 2005
Date of revision:
Handle: RePEc:eve:wpaper:05-06
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  1. V.V. Chari & Patrick J. Kehoe & Ellen R. McGrattan, 2002. "Can sticky price models generate volatile and persistent real exchange rates?," Staff Report 277, Federal Reserve Bank of Minneapolis.
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  11. Demertzis, Maria & Hallett, Andrew Hughes, 1998. "Asymmetric transmission mechanisms and the rise in European unemployment: A case of structural differences or of policy failures?," Journal of Economic Dynamics and Control, Elsevier, vol. 22(6), pages 869-886, June.
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  13. Frank Smets & Raf Wouters, 2003. "An Estimated Dynamic Stochastic General Equilibrium Model of the Euro Area," Journal of the European Economic Association, MIT Press, vol. 1(5), pages 1123-1175, 09.
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  17. Bastiaan A. Verhoef, 2003. "The (A)Symmetry of shocks in the EMU," DNB Staff Reports (discontinued) 106, Netherlands Central Bank.
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