Asymmetries and Macroeconomic Shocks: The Pre-Crisis Period and Evidence for Europe

The main purpose of this paper is to discover the underlying structure of the debt crisis and examine the cross-country differences by analyzing the asymmetric supply and demand shocks for the member and candidate countries of the European Union for the pre-crisis period. Following the path of Bayoumi and Eichengreen (1993, 1997) and Blanchard and Quah (1989), the calculations show us that Greece has the largest supply shocks, while Turkey has the largest demand shocks. By looking at the impulse response functions associated with the SVARs, it is clear that Greece has the lowest adjustment speed to demand disturbances followed by the United Kingdom. Those countries which experienced debt crises in the EMU, seemed to have big supply and demand shocks and compared to other member countries the adjustment speed of their economies to these shocks are slower.