infonet-economy

We investigate the impact of EMU on macroeconomic volatility. The volatilities of inflation
and nominal interest rates have declined, as has, more importantly, the volatility of real
consumption growth. Since global volatility has fallen for reasons unrelated to EMU (the
great moderation), we focus on the volatilities of bilateral differences in growth rates (or
changes). Pairs of EMU countries have experienced the greatest fall in consumption volatility,
followed by pairs in which one country is an EMU member. We demonstrate that these
findings are closely linked to changes in consumption risk sharing. Overall, EMU has made a
difference.