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Asymmetric Shocks, Structural Rigidities and Adjustment Capability in EMU - A Review

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  • Sotiris Theodoropoulos

Abstract

The high degree of sustainable nominal convergence between EMU member states have not implied a corresponding degree of real and structural convergence. Still existing structural asymmetries in the monetary union, which is not an Optimum Currency Area, are bound to broaden due to continuous enlargement of Europe, giving rise to various kinds of shocks and divergences, poor economic performance in some member countries and to Europe as a whole. This paper examines the potential sources of asymmetries, which to a large extend determine the exposure to asymmetric shocks, or asymmetrical effects stemming from symmetric shocks. We also analyze available adjustment mechanisms and appropriate policy instruments in EMU’s economic reality. Using a set of economic indicators we investigate how some product and labor market rigidities affect in an adverse way macroeconomic performance in EMU. Having restricted the fiscal room for maneuver under the Stability and Growth Pact, existing asymmetries and structural rigidities call for a speed-up of structural reforms, as the only way to growth and prosperity.

Suggested Citation

  • Sotiris Theodoropoulos, 2005. "Asymmetric Shocks, Structural Rigidities and Adjustment Capability in EMU - A Review," European Research Studies Journal, European Research Studies Journal, vol. 0(3-4), pages 3-20.
    • Handle: RePEc:ers:journl:v:viii:y:2005:i:3-4:p:3-20
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    References listed on IDEAS

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    Cited by:

    1. A D Adom, 2016. "Resilience of developing countries to shocks: Case study of WAEMU countries with SUR and VAR Approaches," Economic Issues Journal Articles, Economic Issues, vol. 21(2), pages 105-138, September.

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    More about this item

    Keywords

    EMU; optimum currency areas; asymmetries; asymmetric shocks; adjustment capability; product and labor market regulation;
    All these keywords.

    JEL classification:

    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • K20 - Law and Economics - - Regulation and Business Law - - - General
    • L43 - Industrial Organization - - Antitrust Issues and Policies - - - Legal Monopolies and Regulation or Deregulation
    • L5 - Industrial Organization - - Regulation and Industrial Policy

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