Recent proposals for enlarging the European Community to include the EFTA countries raise the question of whether the new members should participate in a European Monetary Union. In part, the issue hinges on the incidence of aggregate supply and demand disturbances. We use data on prices and...

Data on output and prices for 11 EC member nations are analyzed to extract information on underlying aggregate supply and demand disturbances using a VAR decomposition. The coherence of the underlying shocks across countries and the speed of adjustment to these shocks are then compared to the...