Adjustment to Asymmetric Shocks

15-09-1998

Once the euro is a reality, participating Member States will be unable to alter exchange and interest rates. Nor will there be a large federal budget and significant labour mobility, as in the US. How will they then cope cope with 'asymmetric shocks' ? This study examines these questions in the light of 'optimum currency area' theory. It concludes that the main economic disparities are between regions rather than countries, and that appropriate instruments of adjustment in principle already exist.

Once the euro is a reality, participating Member States will be unable to alter exchange and interest rates. Nor will there be a large federal budget and significant labour mobility, as in the US. How will they then cope cope with 'asymmetric shocks' ? This study examines these questions in the light of 'optimum currency area' theory. It concludes that the main economic disparities are between regions rather than countries, and that appropriate instruments of adjustment in principle already exist.