The analysis of supply and demand shocks adjustment dynamics of the EU-15 countries

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JEL classification

• Multiple or Simultaneous Equation Models; Multiple Variables: General
• Macroeconomics and Monetary Economics: General
• Prices, Business Fluctuations, and Cycles: General (includes Measurement and Data)

Keywords

Adjustment dynamics, demand shock, European union-15, VAR model

Abstract

In this paper, we use structural vector autoregression model with two variables to decompose economic disturb-ances to supply and demand shocks. This allows us to compare supply and demand shocks adjustment dynamics of output and price level among the EU-15 countries. The symmetry of output and price responses to these two kinds of shocks is assessed on the basis of correlation analysis. For our purposes we work with data for the EU-15 countries for the period 1995-2009. Our results suggest higher symmetry in the adjustment process to supply shocks and differences regarding price responses to both kinds of shocks.