Growth and Inflation Dispersions in EMU: Reasons, the Role of Adjustment Channels, and Policy Implications

Author/Editor:

Emil Stavrev

Publication Date:

July 1, 2007

Electronic Access:

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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:

This paper's analysis of growth and inflation dispersions in the euro area reveals several findings. First, these dispersions have declined appreciably since EMU; remaining dispersions are small but persistent, relating mainly to country-specific shocks, not differences in the transmission of common shocks. Second, the different behavior of interest rates just before and after the introduction of the euro has contributed significantly to growth dispersions. However, this has been a one-off shock whose effects, particularly on construction, should be declining over time. Third, financial sector integration could do much more to insure countries against shocks and increase consumption smoothing.

Series:

Working Paper No. 2007/167

Subject:

Consumption Housing prices Income Inflation Real interest rates

English

Publication Date:

July 1, 2007

ISBN/ISSN:

9781451867312/1018-5941

Stock No:

WPIEA2007167

Pages:

26

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