A closer shock convergence under EMU? Results of a VAR analysis

We use a structural vectorautoregressive technique to assess whether the EMU project and associated harmonization policies have made economic shocks in the respective countries to converge. We find that after implementation of the ECB, shock correlations have generally grown among EMU members while Germany can be identified as reference point. This may be a hint that, according to the Lucas critique, national systems react endogenously to modifications of institutional frameworks. Considering non-participating countries, we also find signs of closer co-movement, presumably due to international harmonization. We extend our analysis to evaluate in how far shocks have already been synchronized between the CEECs and Germany and find that the respective pattern after creation of EMU has been broadly similar to the one between current members in pre-EMU times. JEL classification: F33, F36