EMU's Problems: Asymmetric Shocks or Asymmetric Behavior?

Date: 01 September 2013

The early literature critical of the European Monetary Union feared the effects of asymmetric shocks on an area with little intercountry labor mobility and no common fiscal policy. Yet, asymmetric behavior, rather than asymmetric shocks, appears to be at the root of present difficulties. Peripheral countries have seen profligate public sectors incur large deficits and incautious private sectors incur large debts. In addition, wages in the Southern economies have grown more rapidly, and productivity more slowly, than in the North, storing up a medium-run competitiveness problem. Finally, governance standards, rather than converging, have diverged thus potentially jeopardizing the long-run aim of full political union. A plausible explanation for the failure of wage and governance behavior to converge is deep-seated differences in institutions, culture and trust.

Wendy Carlin Andrea Boltho

Economic Curriculum Development

EMU's Problems: Asymmetric Shocks or Asymmetric Behavior?

Type: paper

Carlin, W. & Boltho, A. (2013) ‘EMU’s problems: asymmetric shocks or asymmetric behaviour?’ Comparative Economic Studies 55, 387-403

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