Macroeconomic Shocks Temporary and permanent shocks Country specific and sector specific shocks Real and financial shocks Exogenous and policy induced shocks

Shocks!

Box 1 Mundell s Theory of Optimum Currency Areas

Ill of shock.

The result of shock.

Is it shock you need?

Cyclical and structural asymmetry

We find that the behaviour of GDP, consumption, investment, prices and, to a smallerdegree, net exports are quite similar, while the behaviour of government purchases, moneyand terms of trade vary substantially across countries.

Germany s Five Shocks

Asymmetric shocks a threat to cohesion

Asymmetric Shocks the fact of monetary union itself and

A more useful distinction can perhaps be made, as in the case of shocks, between shortterm andlong terms causes. A rise in shortterm interest rates may, for example, have differing effects indifferent areas because they are at different stages in an economic cycle.

But economies are always buffeted by shocks.

So it was a series of five painful shocks.

Y the ability to alter national exchange rates, or to conduct a countryspecific monetary policy, canbe of little value in meeting such asymmetric shocks but that

On the contrary, I think our luck measured by the magnitude of the private sector and other shocks that have hit the global economy has, in fact, been relatively bad.

Weber (1990) found real wage and unemployment rates dominatedby asymmetric shocks, but symmetric shocks mainly determining inflation. Caporale s ownanalysis used GDP fluctuations.

Some major shocks could come from unexpected quarters.

Fiscal policy may also play a role in countering country specific shocks .

They are also the most vulnerable to the shocks of the financial crisis.

These shocks were naturally beyond the ECB s control.

In case of shock, standard medical treatment for shock should be implemented.

Apart from those brief traumas, nothing happens suddenly.

Such findings seem to augur badly, not just for possible UK membership, but for the EMU itself.

This would lead us into a very complex debate. The problems are not caused by clashes themselves, but by asymmetric clashes asymmetric clashes differ depending on whether they are temporary or permanent, whether they relate to supply or demand.

Most research finds that only a minority of the shocks actually experienced by EU countries havebeen country specific and that even countryspecific asymmetric shocks have often had similaroutcomes. Some of the shocks have been sector specific, having no special consequences forexchange rate or monetary policy.

Is there a better way to respond to adverse shocks?

A good monetary system should protect an economy against such shocks.

There is no evidence of superiority of one vasopressor over another.

In case of shock, standard medical treatment for shock should be implemented.

Patients

The Commission mentions resistance to shocks as an example.

And when I saw it and yet, through the shock, the terrible shock, and the terrible explosion in our lives, literally, we were not vengeful.

And when I saw it and yet, through the shock, the terrible shock, and the terrible explosion in our lives, literally, we were not vengeful.

Cohen and Wyplosz (1989), linked asymmetries totransitory shocks and symmetries to permanent shocks (finding that symmetry predominated inthe case of France Germany).

Despite these shocks and short lived erratic price movements , inflation rates remained generally low .

There are no great shocks but various declines and crises.

Adjustment to shocks is also independent of location in the US.

In case of shock, standard medical treatment should be administered.

Angioneurotic oedema, anaphylactic reactions including anaphylactic shock, hypersensitivity

Shocks on the supply side are said to have effects on inflation and output in opposite directions.

ó Will the shocks likely to be faced by the EMU area be symmetric or asymmetric?

It is also to be noted that the shocks to Italymove in the opposite direction of these to France, and are not significantly correlated to shocksto the German or UK economy.

There are indeed already signs, observed by Eltis himself, that the low levelof UK inflation in recent years has encouraged a switch to fixed rate borrowing. Currentlyobserved cyclical and structural asymmetries may also both be subject to the Lucas critique .Christodoulakis, Dimelis and Kollintzas (1995) observed that

Finally , second round effects refer to the possibility that , in addition to the direct and indirect effects mentioned above , an oil price shock may have a further impact on inflation because it might result in higher wage claims to compensate for the decline in real income .