Iolanda Lo Cascio

Regional Asymmetric Reactions to Shocks in EMU: an Assessment of Different Approaches

In recent years there has been an increasing research effort in estimating regional asymmetric shocks and assessing their importance within the European Monetary Union (EMU). In this chapter we offer an evaluation of the different approaches by distinguishing them according to methodological underpinnings, variables used and pitfalls and potential extensions of the analysis. The structure of this contribution is the following. In section 2 we discuss the relative importance of asymmetric shocks and the main problems connected with their measurement. In section 3 we focus on the explanatory variables which are assumed to determine the asymmetric reaction to shocks and distinguish between sectoral and regional effects. In section 4 we review some of the models that have explicitly measured regional effects within a multivariate econometric context. In section 5 we evaluate the potential offered by alternative frameworks in dealing with the relative shortcomings of the different approaches. Final comments are left to section 6.

DECLINE IN US OUTPUT GROWTH VOLATILITY: A WAVELET ANALYSIS

The aim of the paper is to determine (endogenously) whether the volatility of the US output growth rate has changed since the late 1940s. By applying the discrete wavelet transform to the annualized quarter�?to�?quarter output growth series, we test the homogeneity of the variance on a scale�?by�?scale basis. A version of the Normalized and Centered Cumulative Sum of Squares test, adapted to wavelets, leads us to reject the null of constant variance in the two levels of decomposition of the highest resolution and to locate a single break in 1982. The economic implications are explored.