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An Empirical Analysis of Fluctuations in Economic Efficiency in European Countries

Chadwick, Meltem (2010): An Empirical Analysis of Fluctuations in Economic Efficiency in European Countries.

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Abstract

This paper analyses fluctuations in the economic efficiency in 15 European countries over more than a period of three decades, between 1970s and 2000s, using movements in the wedge between the marginal rate of substitution between leisure and consumption, and the marginal product of labour as a measure of economic efficiency. The time series measures of economic efficiency constructed for each country reveals that there have been periods of considerable welfare fluctuations in many European countries over this sample and that these movements are associated with cross-correlations to other countries. Furthermore, the results indicate considerable effects of identified monetary shocks in some countries for the within country welfare fluctuations, as well as cross-border welfare fluctuations. In addition, for the years studied, it has been observed that the European countries are far behind from having a common fluctuation within the framework of monetary policy shocks related to output, consumer prices and the exchange rates. The monetary policy shocks of 15 countries are dominated by their own policy cycles.

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