The International Dimension of an Incomplete Emu

59 Pages Posted: 25 Aug 2020

See all articles by Demosthenes Ioannou

Demosthenes Ioannou

European Central Bank (ECB)

Livio Stracca

European Central Bank (ECB)

Maria Sole Pagliari

affiliation not provided to SSRN

Date Written: August, 2020

Abstract

This paper quantifies the economic influence that shocks to EMU cohesion, which in turn reflect the incomplete nature of the monetary union, have on the rest of the world. Disentangling euro area stress shocks and global risk aversion shocks based on a combination of sign, magnitude and narrative restrictions in a daily Structural Vector Autoregression (VAR) model with financial variables. We find that the effects of euro area stress shocks are significant not only for the euro area but also for the rest of the world. Notably, an increase in euro area stress entails a slowdown of economic activity in the rest of the world, as well as a fall in imports/exports of both the euro area and the rest of the world. A decrease in euro area stress has somewhat more widespread beneficial effects on both economic performance and global trade activity.

Keywords: Bayesian SVAR, Economic and Monetary Union, narrative sign restrictions, panel local projections

JEL Classification: C23, C32, F02, F33

Suggested Citation

Ioannou, Demosthenes and Stracca, Livio and Pagliari, Maria Sole, The International Dimension of an Incomplete Emu (August, 2020). ECB Working Paper No. 20202459, Available at SSRN: https://ssrn.com/abstract=3680589

Demosthenes Ioannou (Contact Author)

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Livio Stracca

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany
0049 69 13440 (Phone)
0044 69 1344 6000 (Fax)

Maria Sole Pagliari

affiliation not provided to SSRN

No Address Available

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