Currency Unions, Economic Fluctuations and Adjustment: Some Empirical Evidence

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Abstract
This paper compares sources of disturbances to output and labour market adjustment in the US currency union compared to a set of EU countries. Comparable datasets comprising 1-digit sectoral data for 8 US regions and 8 European countries are constructed and used to study the relative importance of industry-specific, region-specific, and aggregate shocks to output growth. Both areas are subject to similar overall disturbances although a disaggregated perspective reveals some differences. The major difference, however, is in labour market adjustment. Inter-regional labour mobility appears to be a much more important adjustment mechanism in the United States, which has a more integrated labour market than the EU.
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