DP1172 Currency Unions, Economic Fluctuations and Adjustment: Some Empirical Evidence

Author(s): Tamim Bayoumi, Eswar Prasad
Publication Date: May 1995
Keyword(s): Currency Unions, Economic Fluctuations, Labour Market Adjustment
JEL(s): E32, F33, J61
Programme Areas: International Macroeconomics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=1172

This paper compares sources of disturbances to output and labour market adjustment in the US currency union compared to a set of EU countries. Comparable datasets comprising 1-digit sectoral data for 8 US regions and 8 European countries are constructed and used to study the relative importance of industry-specific, region-specific, and aggregate shocks to output growth. Both areas are subject to similar overall disturbances although a disaggregated perspective reveals some differences. The major difference, however, is in labour market adjustment. Inter-regional labour mobility appears to be a much more important adjustment mechanism in the United States, which has a more integrated labour market than the EU.