HOW THE INCREASED TRADE INTEGRATION IN THE EMU AFFECTS THE SYMMETRY OF SHOCKS

In this paper, I investigate if the increased trade integration in the EMU can translate into a higher symmetry of shocks between countries, implying a higher synchrony of business-cycles and consequently a lower cost of sharing a common monetary policy. The overall results show a positive relationship between higher intra-industry trade and demand shock correlations in the EMU, while specialization leads to strong asymmetric demand shocks. Regarding the supply-side shock correlations, the results obtained provide evidence in favor of inter-industry trade increasing positive effects on supply shock symmetry due to international spillover effects.