Working Paper: NBER ID: w31519
Authors: Katheryn Russ; Jay C. Shambaugh; Sanjay R. Singh
Abstract: In his papers during the lead up to the birth of the European Monetary Union, Obstfeld considered whether the countries forming the EMU were sufficiently similar to survive a single monetary policy—and more importantly, whether they had the capacity to adjust to asymmetric shocks given a single monetary and exchange rate policy. The convention at the time was to take the United States as the baseline for a smoothly functioning currency union. We document the evolution of the literature on regional labor market adjustment within the United States, expanding on stylized facts illustrating how stratification in local labor market outcomes appears far more persistent today than 30 years ago in the context of what Obstfeld and Peri (1998) call non-adjustment in unemployment rates. We then extend the currency union literature by adding an additional consideration: differences in regional cyclical sensitivity. Using measures of cyclicality and Obstfeld-Peri-type non-adjustment, we explore the characteristics of places that can get left behind when local labor markets respond differently to national shocks and discuss implications for policy.
Keywords: Currency Areas; Labor Markets; Regional Cyclical Sensitivity
JEL Codes: F15; F16; F45
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| persistent disparities in unemployment rates across regions (J64) | nonadjustment (F32) |
| higher unemployment rates (J64) | remain high over time (C41) |
| regional characteristics (R11) | labor market outcomes (J48) |
| national economic shocks (F69) | local unemployment rates (J69) |
| national shocks (E65) | regional responses (R11) |
| manufacturing presence (L69) | national unemployment gap (J64) |
| technological changes and worker skill variations (O33) | regional responses (R11) |