BOFIT Discussion Papers, Institute for Economies in Transition, Bank of Finland
Similarity of supply and demand shocks between the Euro area and the CEECs
() and Iikka Korhonen
Abstract: We assess the correlation of supply and demand shocks
between the countries of the euro area and the accession countries in the
1990s. Shocks are recovered from estimated structural VAR models of output
growth and inflation. We find that some accession countries have a quite
high correlation of the underlying shocks with the euro area. However, even
for many advanced accession countries, the shocks remain significantly more
idiosyncratic. Furthermore, many EU countries seem to have a much higher
correlation with the core euro area countries than in the previous decades.
Continuing integration within the EU seems to have aligned the business
cycles of these countries as well.
Keywords: optimum currency area; EMU; EU enlargement; structural VAR; (follow links to similar papers)
JEL-Codes: E32; F42; (follow links to similar papers)
46 pages, December 18, 2001
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