DP711 Macroeconomic Shocks, the ERM, and Tri-Polarity

Author(s): Tamim Bayoumi, Mark P Taylor
Publication Date: September 1992
Keyword(s): ERM, Macroeconomic Performance, Tri-polarity
JEL(s): F33, F62
Programme Areas: International Macroeconomics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=711

We analyse the importance of ERM membership for macroeconomic performance by comparing the behaviour of real output growth and inflation of members and non-members of the ERM. Taking the traditional aggregate supply and demand model as the basis for the analysis, we propose and implement an econometric procedure for identifying aggregate demand and supply shocks. The results confirm that the ERM has acted as a vehicle for macroeconomic policy coordination among its members. We also investigate several issues relating to the notion of a `tri-polar' global economic system comprising Germany, Japan and the US.