Symmetry and Assymmetry of Supply and Demand Stocks in the European Union : a Dynamic Analysis
A couple of years before the start of EMU, there is still no agreement on the state of convergence of European economies, nor on the scale of the costs and benefits of a monetary union. The literature has discussed these issues based on the Optimal Currency Area Theory (see Mundell (1961), Mac Kinnon (1964) and Kenen (1969)). The main idea is that the countries gathering in a monetary union will face adjustment costs due to differences in their economic structure. The more similar economic structures are, the less will be these costs. The usual practice to measure the (potential) structural similarities is the following: first, to estimate macroeconomic shocks (such as demand and supply shocks) faced by the various countries of interest over a certain period of time, and second to compute the correlation coefficient between two countries' series of shocks. A high correlation coefficient is then meant to provide evidence on a high degree of symmetry of economic structures across countries.
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