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Is There a Conflict Between EC Enlargement and European Monetary Unification?

  • Tamim Bayoumi
  • Barry Eichengreen

Recent proposals for enlarging the European Community to include the EFTA countries raise the question of whether the new members should participate in a European Monetary Union. In part, the issue hinges on the incidence of aggregate supply and demand disturbances. We use data on prices and output and a VAR decomposition to analyze this issue empirically, grouping economies according to the magnitude of the disturbances, their cross-country correlation, and speeds of response. This leads us to distinguish an EC "core" (made up of Germany and its immediate neighbors) and an EC periphery (made up of the UK and the Southern European members of the Community). Austria, Sweden and Switzerland behave more similarly to the EC core than do Norway, Finland and Iceland. This suggests that the case for EMU participation is stronger for Austria, Sweden and Switzerland than for the other EFTA countries.

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File URL: http://www.nber.org/papers/w3950.pdf
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 3950.

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Date of creation: Jan 1992
Date of revision:
Publication status: published as Greek Economic Review, 1993
Handle: RePEc:nbr:nberwo:3950
Note: ITI IFM
Contact details of provider: Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
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Web page: http://www.nber.org
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  1. Lippi, Marco & Reichlin, Lucrezia, 1993. "The Dynamic Effects of Aggregate Demand and Supply Disturbances: Comment," American Economic Review, American Economic Association, vol. 83(3), pages 644-52, June.
  2. Bayoumi, Tamim & Eichengreen, Barry, 1992. "Shocking Aspects of European Monetary Unification," CEPR Discussion Papers 643, C.E.P.R. Discussion Papers.
  3. Barry Eichengreen, 1991. "Is Europe an Optimum Currency Area?," NBER Working Papers 3579, National Bureau of Economic Research, Inc.
  4. Gylfason, Thorvaldur, 1991. "Iceland on the Outskirts of Europe: The Common Property Resource Problem," CEPR Discussion Papers 530, C.E.P.R. Discussion Papers.
  5. Morris Goldstein & Geoffrey Woglom, 1991. "Market-Based Fiscal Discipline in Monetary Unions: Evidence From the U.S. Municipal Bond Market," IMF Working Papers 91/89, International Monetary Fund.
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