Macroeconomic Differentials and Adjustment in the Euro Area

This paper analyses macroeconomic differentials and the adjustment in the euro area so far with the aim to draw lessons and policy implications for the better functioning of the EMU and euro area enlargement. The questions we address are the following: What do we know about macroeconomic differentials in the euro area? Are they temporary or persistent? What factors underlie them? What is the likelihood of asymmetric shocks in the euro area and what are their main transmission channels? What policy issues related to the macroeconomic adjustment in the EMU are most important at this stage?