European asymmetries

The degree of symmetry of the shocks that cause macroeconomic fluctuations in the different European economies is a basic consideration when evaluatin g the cost in terms of loss of the nominal exchange rate as an instrument f or short-term macroeconomic adjustment, The more symmetrical these shocks, the lower the costs. This paper uses a structural Bayesian Vector Autoregre ssive (BVAR) approach and quarterly data from 1970 to 1996 to characterise the responses to common and specific, nominal and real, shocks in four Euro pean economies. Our findings suggest that, in the short run, asymmetrical s hocks have dominated. (C) 1999 Elsevier Science B.V. All rights reserved.