MACROECONOMIC SHOCKS, THE ERM, AND TRI-POLARITY

We use the comparative behavior of real output growth and inflation be havior of members and non-members of the ERM to analyze the importance of ERM membership on macroeconomic performance. An econometric proced ure for identifying temporary and permanent shocks to output is propos ed and executed. The results confirm that the ERM has acted as a vehic le for macro-policy coordination between members. We also investigate several issues relating to the hypothesis of global economic ''tri-pol arity'' between the United States, Germany and Japan.