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European Monetary Union: evidence from structural VARs

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  • Joseph A. Whitt

Abstract

This paper examines the historical pattern of aggregate demand and supply shocks in several European Monetary System countries in order to assess the desirability of monetary union. Countries with similar patterns of shocks are presumably better candidates for monetary union than those hit by wildly disparate shocks. The historical time series of shocks is identified by estimating a vector autoregressive model while imposing the restriction that demand shocks have no permanent effect on real output. In most cases supply shocks are positively correlated with those of Germany, but the negative correlation of demand shocks suggests that monetary union may not be desirable.

Suggested Citation

  • Joseph A. Whitt, 1995. "European Monetary Union: evidence from structural VARs," FRB Atlanta Working Paper 95-1, Federal Reserve Bank of Atlanta.
  • Handle: RePEc:fip:fedawp:95-1
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    References listed on IDEAS

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    1. Charles R. Bean, 1992. "Economic and Monetary Union in Europe," Journal of Economic Perspectives, American Economic Association, vol. 6(4), pages 31-52, Fall.
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    6. Eichengreen, Barry, 1990. "Is Europe an Optimum Currency Area?," CEPR Discussion Papers 478, C.E.P.R. Discussion Papers.
    7. Kenneth A. Froot & Kenneth Rogoff, 1991. "The EMS, the EMU, and the Transition to a Common Currency," NBER Chapters,in: NBER Macroeconomics Annual 1991, Volume 6, pages 269-328 National Bureau of Economic Research, Inc.
    8. Faust, Jon & Leeper, Eric M, 1997. "When Do Long-Run Identifying Restrictions Give Reliable Results?," Journal of Business & Economic Statistics, American Statistical Association, vol. 15(3), pages 345-353, July.
    9. Tamim Bayoumi & Barry Eichengreen, 1992. "Shocking Aspects of European Monetary Unification," NBER Working Papers 3949, National Bureau of Economic Research, Inc.
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    Cited by:

    1. Horvath, Julius, 2003. "Optimum currency area theory : A selective review," BOFIT Discussion Papers 15/2003, Bank of Finland, Institute for Economies in Transition.
    2. Fisher, Douglas, 1996. "Monetary aggregation in the United States and Canada," The North American Journal of Economics and Finance, Elsevier, vol. 7(1), pages 91-106.
    3. Peter R. Hartley & Joseph A. Whitt, 1997. "Macroeconomic fluctuations in Europe: demand or supply, permanent or temporary?," FRB Atlanta Working Paper 97-14, Federal Reserve Bank of Atlanta.
    4. Hartley, Peter R. & Whitt Jr, Joseph A., 2003. "Macroeconomic fluctuations: Demand or supply, permanent or temporary?," European Economic Review, Elsevier, vol. 47(1), pages 61-94, February.

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