Relative Prices and Economic Adjustment in the U.S. and the EU: A Real Story About European Monetary Union

June 1, 1994

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

Structural vector autoregressions are used to analyze the relationship between real output and relative prices within the EU and the United States, Relative price variability appears to be more important for adjustment within the EU than the United States, reflecting the lower integration of goods and factor markets. In the absence of higher market integration, the lower relative price variability implied by the introduction of a single currency in the EU could well cause significant economic disruption.

Subject: Currencies, Econometric analysis, Economic integration, Exchange rates, Foreign exchange, Monetary unions, Money, National accounts, Personal income, Structural vector autoregression

Keywords: common currency, Currencies, EMU, EU country, EU country estimate, EU entrant, EU goods, EU result, EU sample period, Europe, Exchange rates, Monetary unions, nominal exchange rate, Personal income, price movement, price response, relative price, Relative prices, Structural vector autoregression, supply curve, WP

Pages:
36
Volume:
1994
DOI:
https://doi.org/10.5089/9781451848632.001
Issue:
065
Series:
Working Paper No. 1994/065
Stock No:
WPIEA0651994
ISBN:
9781451848632
ISSN:
1018-5941

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Notes

Also published in Staff Papers, Vol. 42, No. 1, March 1995.

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