Shocking Aspects of European Monetary Unification

54 Pages Posted: 25 May 2006 Last revised: 17 Oct 2022

See all articles by Tamim Bayoumi

Tamim Bayoumi

International Monetary Fund (IMF); Centre for Economic Policy Research (CEPR)

Barry Eichengreen

University of California, Berkeley; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

Date Written: January 1992

Abstract

Data on output and prices for 11 EC member nations are analyzed to extract information on underlying aggregate supply and demand disturbances using a VAR decomposition. The coherence of the underlying shocks across countries and the speed of adjustment to these shocks are then compared to the results from US regional data. We find that the underlying shocks are significantly more idiosyncratic across EC countries than across US regions, which may indicate that the EC will find it more difficult to operate a monetary union. However a core of EC countries, made up of Germany and her immediate neighbors, experience shocks of similar magnitude and cohesion as the US regions. EC countries also exhibit a slower response to aggregate shocks than US regions, presumably reflecting lower factor mobility.

Suggested Citation

Bayoumi, Tamim and Eichengreen, Barry, Shocking Aspects of European Monetary Unification (January 1992). NBER Working Paper No. w3949, Available at SSRN: https://ssrn.com/abstract=228003

Tamim Bayoumi (Contact Author)

International Monetary Fund (IMF) ( email )

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Centre for Economic Policy Research (CEPR)

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Barry Eichengreen

University of California, Berkeley ( email )

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Berkeley, CA 94720
United States

National Bureau of Economic Research (NBER) ( email )

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Cambridge, MA 02138
United States

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

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