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European Monetary Union: evidence from structural VARs

  • Joseph A. Whitt
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    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.

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    File URL: http://www.frbatlanta.org/filelegacydocs/wp951.pdf
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    Paper provided by Federal Reserve Bank of Atlanta in its series FRB Atlanta Working Paper with number 95-1.

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    Date of creation: 1995
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    Handle: RePEc:fip:fedawp:95-1
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    1. Barry Eichengreen., 1990. "Is Europe an Optimum Currency Area?," Economics Working Papers 90-151, University of California at Berkeley.
    2. Tallman, Ellis W. & Wang, Ping, 1995. "Money demand and the relative price of capital goods in hyperinflations," Journal of Monetary Economics, Elsevier, vol. 36(2), pages 375-404, November.
    3. Bean, Charles R, 1992. "Economic and Monetary Union in Europe," CEPR Discussion Papers 722, C.E.P.R. Discussion Papers.
    4. Engle, Robert F & Granger, Clive W J, 1987. "Co-integration and Error Correction: Representation, Estimation, and Testing," Econometrica, Econometric Society, vol. 55(2), pages 251-76, March.
    5. Kenneth A. Froot & Kenneth Rogoff, 1991. "The EMS, the EMU, and the Transition to a Common Currency," NBER Working Papers 3684, National Bureau of Economic Research, Inc.
    6. Jon Faust & Eric M. Leeper, 1994. "When do long-run identifying restrictions give reliable results?," FRB Atlanta Working Paper 94-2, Federal Reserve Bank of Atlanta.
    7. Ahmed, S. & Ickes, B. & Wang, P. & Yoo, S., 1989. "International Business Cycles," Papers 7-89-4, Pennsylvania State - Department of Economics.
    8. Bernanke, Ben S., 1986. "Alternative explanations of the money-income correlation," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 25(1), pages 49-99, January.
    9. Matthew D. Shapiro & Mark W. Watson, 1988. "Sources of Business Cycle Fluctuations," Cowles Foundation Discussion Papers 870, Cowles Foundation for Research in Economics, Yale University.
    10. Bayoumi, Tamim & Eichengreen, Barry, 1992. "Shocking Aspects of Monetary Unification," Department of Economics, Working Paper Series qt791143kp, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
    11. Blanchard, Olivier Jean & Quah, Danny, 1989. "The Dynamic Effects of Aggregate Demand and Supply Disturbances," American Economic Review, American Economic Association, vol. 79(4), pages 655-73, September.
    12. Tamim Bayoumi and Barry Eichengreen., 1992. "Shocking Aspects of European Monetary Unification," Economics Working Papers 92-187, University of California at Berkeley.
    13. Marco Lippi & Lucrezia Reichlin, 1993. "The dynamic effects of aggregate demand and supply disturbances: comment," ULB Institutional Repository 2013/10159, ULB -- Universite Libre de Bruxelles.
    14. Gamber, Edward N & Joutz, Frederick L, 1993. "The Dynamic Effects of Aggregate Demand and Supply Disturbances: Comment," American Economic Review, American Economic Association, vol. 83(5), pages 1387-93, December.
    15. Christopher A. Sims, 1986. "Are forecasting models usable for policy analysis?," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Win, pages 2-16.
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