Does trade integration contribute to synchronization of shocks in Europe?

Mikek, Peter (2009): Does trade integration contribute to synchronization of shocks in Europe?

Abstract

This paper examines the two related questions: convergence of shocks in NMS to their EU counterparts through time and the effect of trade integration on distributions of shocks. The decision to adopt the euro will be associated with higher implicit costs for new EU member states (NMS) with a more asymmetric shock structure. I employ the Kalman filter to calculate time varying regression coefficients relating previously identified structural shocks in NMS and the EU. Results in general show no convergence for long run shocks identified based on Blanchard-Quah restrictions. Supply and demand shocks do not become increasingly symmetric. Results suggest that the catching up process in NMS is slowing down. Additionally, there is no strong evidence suggesting that trade integration increased synchronization of shocks between the existing EU members and the newcomers. This is true also fro the period after joining the union.

• Item Type: MPRA Paper
• Language: English
• Keywords: structural VAR, optimum currency area, EMU accession, monetary union, Kalman filter, demand shocks, supply shocks, trade integration
• Subjects: E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit; E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E52 - Monetary Policy; E - Macroeconomics and Monetary Economics > E6 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook; E - Macroeconomics and Monetary Economics > E6 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook > E60 - General; E - Macroeconomics and Monetary Economics > E6 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook > E63 - Comparative or Joint Analysis of Fiscal and Monetary Policy ; Stabilization ; Treasury Policy; F - International Economics > F4 - Macroeconomic Aspects of International Trade and Finance > F44 - International Business Cycles

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