Title: The nature and propagation of shocks in the euro area: a comparative SVAR analysis

Authors: Alberto Coco; Andrea Silvestrini

Addresses: Bank of Italy, Via Nazionale, 91, 00184 Roma, Italy ' Bank of Italy, Via Nazionale, 91, 00184 Roma, Italy

Abstract: This paper investigates the nature and the propagation of macroeconomic shocks hitting the euro area, in order to draw indications on the functioning and viability of the monetary union after 15 years from its inception. Structural VAR models identified with sign restrictions for a large set of euro-area countries allow comparing the properties of three independent shocks over different sample periods, before and after the start of the EMU. Results show that, up to the third quarter of 2008, shocks on average have increased their co-movement and decreased their size and persistence in eurozone countries, compared with two control countries inside the European Union but outside the euro area (UK and Sweden). Conversely, following the outbreak of the global financial crisis, shocks have become on average more harmful for the euro area, as testified by their larger size and persistence relative to those in the two control countries.

Keywords: OCA; optimum currency area; EMU; Economic and Monetary Union; SVAR; structural VAR; sign restrictions; symmetry; size; adjustment speed; co-movement; shock propagation; macroeconomic shocks; euro area; eurozone countries; UK; United Kingdom; Sweden.

DOI: 10.1504/IJCEE.2017.080615

International Journal of Computational Economics and Econometrics, 2017 Vol.7 No.1/2, pp.95 - 114

Received: 02 Feb 2015
Accepted: 31 Aug 2015

Published online: 12 Oct 2016 *

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