Working Paper: CEPR ID: DP1172
Authors: Tamim Bayoumi; Eswar Prasad
Abstract: This paper compares sources of disturbances to output and labour market adjustment in the US currency union compared to a set of EU countries. Comparable datasets comprising 1-digit sectoral data for 8 US regions and 8 European countries are constructed and used to study the relative importance of industry-specific, region-specific, and aggregate shocks to output growth. Both areas are subject to similar overall disturbances although a disaggregated perspective reveals some differences. The major difference, however, is in labour market adjustment. Inter-regional labour mobility appears to be a much more important adjustment mechanism in the United States, which has a more integrated labour market than the EU.
Keywords: currency unions; economic fluctuations; labour market adjustment
JEL Codes: E32; F33; J61
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Interregional labour mobility (J62) | Higher labour market integration in the US (F66) |
| Regional disturbances in non-traded goods sectors within the US (F69) | Labour market adjustments differ from the EU (F16) |
| Country-specific disturbances in traded goods sectors in the EU (F14) | Labour market adjustments differ from the US (J68) |
| Productivity trends in the US influenced by industry-specific factors (L69) | Differences in productivity trends between the US and EU (O49) |
| Productivity trends in the EU driven by country-specific factors (O52) | Differences in productivity trends between the US and EU (O49) |
| Aggregate disturbances (E19) | Understanding the interactions between shocks (E32) |