The Euro Area Viewed as a Single Economy: How Does it Respond to Shocks?

Abstract:     
The euro area is a new economic entity, the properties of which are less well known than those of individual countries. Using a recently developed macroeconometric model (AWM), which treats the euro area as a single economy, we document its response to monetary, fiscal, productivity and long-run unemployment shocks. The properties of the estimated model are thereby summarized in terms of these responses. The simulation results and the resulting multipliers appear to be relatively insensitive to the specification of the postulated interest rate setting equation-within the class of functions considered, namely variations around a standard Taylor rule.

Keywords: Euro area, Macroeconometric modelling, Monetary policy

JEL Classification: C52, C53, E52

Accepted Paper Series