Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/264728 
Authors: 
Year of Publication: 
2007
Series/Report no.: 
Working Paper No. 136
Publisher: 
Oesterreichische Nationalbank (OeNB), Vienna
Abstract: 
In this paper, we show how a simple model with sign restrictions can be used to identify symmetric and asymmetric supply, demand and monetary policy shocks in a two-country structural VAR. The results can be used to deal with several issues that are important in the OCA-literature. Whilst the method can be applied to many countries, we provide evidence for the UK versus the Euro Area which are compared versus the US as a benchmark. An important role for symmetric shocks with the Euro Area in explaining UK output fluctuations is found. However, the relative importance of asymmetric shocks, being around 20 percent in the long-run, cannot be ignored. In contrast, the degree of business cycle synchronization seems to have been higher with the US. Moreover, the historical average reaction of the policy rate to symmetric aggregate demand shocks was stronger in the UK than the Euro Area. We also confirm existing evidence of the exchange rate being an important independent source of shocks in the economy.
Subjects: 
optimal currency areas
symmetric and asymmetric shocks
vector autoregressions
JEL: 
C32
E42
F31
F33
Document Type: 
Working Paper

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