Spacialisation in Europe and asymmetric shocks: potential risks of EMU

Most optimistic views, based on Optimum Currency Areas (OCA) literature, have concluded that the probability of asymmetric shocks to occur at a national level will tend to diminish in the Economic and Monetary Union (EMU) as a result of the intensification of the integration process during the most recent years. Therefore, since Economic Geography Theories predict a higher specialisation of regions, it is expected that asymmetric shocks will increase. Previous studies have examined to what extent asymmetric shocks have been relevant in the past using, mainly, static measures of asymmetries such as the correlation coefficients between series of shocks previously calculated from a structural VAR model (Bayoumi and Eichengreen, 1992). In this paper, we study the evolution of manufacturing specific asymmetries in Europe from a dynamic point of view (applying the model proposed by Haldane and Hall, 1991) in order to obtain new evidence about potential risks of EMU.