EMU - COUNTRIES OR REGIONS - LESSONS FROM THE EMS EXPERIENCE

The future adoption of a single currency among some of the members of the European Union has raised many concerns about the ability of EMU t o deal with shocks that are specific to regions or countries. The assu mption behind these concerns is that national business cycles in Europ e are fairly pronounced and that exchange rates are good stabilizing t ools. This pager characterizes regional and national fluctuations with in the European Union and it studies how the process of integration an d the creation of the EMS has affected these patterns. Our results ind icate that national borders have seen their economic significance redu ced over time as the process of integration has increased cross-border correlations and reduced within-border comovements. (C) 1997 Elsevier Science B.V.