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

IMF Working Papers, August 1, 1996

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

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Bibliographic details

• Authors: Eswar S Prasad, Tamim Bayoumi
• Published: August 1, 1996
• Series: IMF Working Papers
• DOI: https://doi.org/10.5089/9781451955163.001

Summary

• Paper examines sources of disturbances to output in the United States and a set of EU countries and analyzes labor market adjustment mechanisms in these two economic areas.
• Comparable datasets comprising 1-digit sectoral data for eight U.S. regions and eight European countries are constructed and used to:
  • compare the degree of industrial diversification; and
  • compare the relative importance of different sources of shocks to output growth.
• Main empirical results:
  • Both areas are subject to similar overall disturbances.
  • A disaggregated perspective reveals some important differences across sectors/regions.
  • The major difference is in labor market adjustment: interregional labor mobility appears to be a much more important adjustment mechanism in the United States, which has a more integrated labor market than the EU.

Data and Methods

• Dataset characteristics:
  • 1-digit sectoral data.
  • Coverage: eight U.S. regions and eight European countries.
• Analysis focuses on:
  • industrial diversification measures; and
  • decomposition of sources of shocks to output growth.
• Comparative approach between U.S. regions and European countries to identify differences in adjustment mechanisms.

Key Findings and Interpretations

• Similarities:
  • Overall disturbances to output are similar across the two economic areas when viewed at an aggregate level.
• Differences:
  • Disaggregated (sectoral/region) analysis reveals important heterogeneity in shocks.
  • Labor market adjustment mechanisms differ markedly:
  • United States: interregional labor mobility is a much more important adjustment channel.
  • European Union: less integrated labor market, implying weaker interregional labor mobility as an adjustment mechanism.

Publication and Metadata

• Authors: Eswar S Prasad, Tamim Bayoumi
• Date: August 1, 1996
• Series: Working Paper No. 1996/081
• Issue: 081
• Volume: 1996
• Pages: 28
• DOI: https://doi.org/10.5089/9781451955163.001
• Stock No: WPIEA0811996
• ISBN: 9781451955163
• ISSN: 1018-5941

Subjects and Keywords

• Subject: Economic sectors, Employment, Labor, Labor markets, Manufacturing, Production, Production growth, Productivity
• Keywords: country, country dummy, country j., Currency unions, economic fluctuations, Employment, Europe, industry, industry dummy, industry result, labor market adjustment, Labor markets, Manufacturing, output share, Production growth, Productivity, region shock, United States region, WP

IMF Working Paper No. 1996/081 — Eswar S Prasad and Tamim Bayoumi, August 1, 1996.