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Archive for January 14th, 2022

These are some of the main questions addressed in a paper just published in the Journal of Policy Modeling, written with my colleague Jose Luis Cendejas (Universidad Francisco de Vitoria, Spain).

Title of the paper: ‘Macroeconomic asymmetry in the Eurozone before and after the Global Financial Crisis: An appraisal of the role of the ECB’.

Abstract:

‘The launch of the euro in 1999 was assumed to enhance macroeconomic convergence among EMU economies. We test this hypothesis from a comparative perspective, by calculating different indices to measure the degree of macroeconomic dispersion within the Eurozone, the UK and the USA (1999–2019). We use common factor models to produce a single index for each monetary area out of different measures of dispersion. These indices can be used to inform on the degree of optimality of a monetary area. Our results show that macroeconomic dispersion in the Eurozone increased notably even before 2007 and it took significantly longer to return to pre-crisis levels, as compared to the UK and the USA. The paper shows the critical role played by the ECB’s asset purchases programmes in reducing macroeconomic divergences among EMU member states since 2015.’

Fig. 1. Overall indices of dispersion for the Eurozone, the UK, and the US. 1999 = 100. The higher the figure the higher dispersion is. You will find individual dispersion indices for 12 macroeconomic and monetary indicators for each economic area in the paper.

The paper can be accessed freely on the following link for the next 50 days: https://www.sciencedirect.com/science/article/pii/S0161893821001009?dgcid=author

Comments and feedback most welcome.

Juan Castañeda

PS. Special mention to Professor Pedro Schwartz, with whom I started to work in this area years ago and have published on the topic before (see here and here).

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