Testing Heterogeneity within the Euro Area Using a Structural Multi-Country Model
Eric Jondeau and Jean-Guillaume Sahuc*
Forthcoming in Economics Letters, 2008.
Abstract
In this paper, we investigate the sources of heterogeneity within the euro area. For this purpose, we build an optimization-based multi-country model (MCM) that allows different sources of heterogeneity across countries, both in terms of behavior of economic agents and in terms of asymmetry of shocks. Using Bayesian techniques, we estimate the MCM and several constrained versions of this model. We then test different sources of heterogeneity within the euro area. We show that the main source is the asymmetry of shocks affecting the different economies. In contrast, the heterogeneity of behaviors does not seem to be of empirical relevance for the euro area.
Keywords: Euro area, heterogeneity, Bayesian econometrics, multi-country model
JEL Classifications: C51, C52, F41
* Banque de France, Centre de recherche and EPEE, University of Evry