Details

Autor(en) / Beteiligte

• Steinbach, Armin

Titel

Asymmetric shocks and heterogeneity following the creation of the EMU

Ist Teil von

• Economic Policy Coordination in the Euro Area, 2014, p.19-37

Ort / Verlag

United Kingdom: Routledge

Erscheinungsjahr

2014

Link zum Volltext

Quelle

Alma/SFX Local Collection

Beschreibungen/Notizen

• This chapter begins with a claim: the need for economic policy coordination in a monetary union depends primarily on three factors. These are: (1) the severity of asymmetric shocks – that is, supply or demand shocks that only affect some regions of a currency union; (2) the relevance of endogenous shocks, i.e. the effects that result from a combination of centralized monetary policy and diversified national economies; and (3) the degree of structural heterogeneity in output, inflation and current account balances between national economies. Generally, economic heterogeneity in a monetary union is not a problem per se as it may reflect acceptable or welcomed diversity, such as the “catching-up” of less advanced economies, leading in the long run to overall convergence. But there are forms of “negative” divergence that hamper growth in the EMU and do not serve long-run convergence. In the absence of appropriate policy responses or adjustment mechanisms, negative divergence can contribute to the macroeconomic underperformance of the eurozone and may also lower the effectiveness of the common monetary policy, as this policy might set false incentives for certain member states.1 Drawing on the intense economic debate about what constitutes an optimum currency area (OCA),2 I make three arguments: (1) that the EU does not represent an OCA; (2) that asymmetric shocks affect the euro countries differently due to their heterogeneity; (3) that no adjustment mechanisms can dampen these effects. In this way, we must ask whether the creation of the monetary union has brought about greater uniformity in business cycles across member states. Before the EMU came into effect, many economists assumed that a common business cycle would be possible for eurozone countries.3 Nevertheless, many studies had identified business cycle divergence between member countries. Particularly in the case of numerous smaller economies, no robust findings of economic convergence and synchronization with the eurozone average could be observed. Furthermore, these analyses were inconclusive about whether this heterogeneity resulted from structural differences or from differences in monetary and fiscal policy responses to macroeconomic shocks.