715 - On the (A)symmetry of Shocks in EMU: Is it that Shocking?

Wetenschappelijke publicatie
Date 1 December 2002

A disadvantage of EMU is the lack of national monetary policy to absorb country-specific shocks. The seriousness of this depends on the availability of alternative adjustment mechanisms, as well as on the asymmetry of the demand and supply shocks within EMU. The aim of this paper is to analyse empirically whether shocks in EMU became more or less symmetric. The results suggest that within EMU the symmetry of demand shocks increased during the last two decades, whilst the symmetry of the supply shocks also rose but not significantly. This convergence of shocks helps the ECB to determine its monetary stance for the entire Euro zone. Key words: demand and supply shocks, EMU, structural vector auto regression, principal components analysis JEL codes: C32, E42, E50, F15, F41