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Convergence Of Shocks And Trade In The Enlarged European Union

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  • Athina Zervoyianni

    (University of Patras, Greece and The Rimini Centre for Economic Analysis)

Abstract

This paper explores the relation between trade flows and cross-country symmetry of supply and demand shocks using data from the EU27 countries. Increased bilateral trade intensity is found to have a positive impact on the correlation of both demand and supply shocks. Intra-industry trade is found to be positively linked to correlations of supply-side shocks but negatively linked to correlation of demand shocks. Our results thus provide support for the argument that aggregate demand spill-overs and intra-industry trade, rather than specialization, dominate in the process through which trade flows affect the cross-country transmission of shocks in Europe. At the same time, our estimates suggest that monetary-policy convergence in Europe (the circulation of the euro), while having increased symmetry of supply-side shocks, has had no direct favourable impact on symmetry of demand shocks. By contrast, the process of fiscal-policy convergence is found to have resulted in more correlated demand shocks across the EU member states.

Suggested Citation

  • Athina Zervoyianni, 2008. "Convergence Of Shocks And Trade In The Enlarged European Union," Working Paper series 15_08, Rimini Centre for Economic Analysis.
  • Handle: RePEc:rim:rimwps:15_08
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    More about this item

    Keywords

    convergence of shocks; trade flows; European integration; cyclical macroeconomic fluctuations;
    All these keywords.

    JEL classification:

    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance
    • F15 - International Economics - - Trade - - - Economic Integration
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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