Revisiting the core-periphery view of EMU

This study extends Bayoumi and Eichengreen's (1993) empirical methodology in order to give a reappraisal of the core-periphery view of the enlarged euro area. We show how to derive two useful indices from the “correlation box” formed by aggregate demand and supply shocks. One measures the Euclidean distance to the core, while the other reveals whether shock asymmetry comes mostly from the production or the demand side. Using data over 1996-2008 on 21 countries and iterative VAR estimates, we find evidence of a gradual move to the symmetric core while new EMU Member States still remain at the very periphery.

► We study the dynamics of the core-periphery approach of EMU since the mid 1990s. ► We estimate iteratively correlations between shocks in terms of supply and demand. ► We then compute the distance to a symmetric area and the strength of asymmetries. ► The move to a symmetric core is more pronounced relative to France than Germany. ► But all EU accession countries still remain at the periphery of the euro area.