INDEX OF MACROECONOMIC INTEGRATION FOR THE U.S.A., THE U.K. AND THE EUROZONE
This research takes into account a variety of macroeconomic indicators to gauge the extent of internal macroeconomic asymmetries in the Eurozone, the United States of America, and the United Kingdom. The collected data spans the period from 1999 (when the Euro was introduced) to 2019 (the last year where data is available). We have collected data on different indicators for the respective countries/states/regions and then calculated four sub-indices and an overall index to assess the level of economic integration in the monetary unions formed by the euro, the U.S. dollar, and the U.K. pound. Why these monetary areas? On the one hand, the Eurozone and the U.S.A. are comparable monetary areas in terms of population and GDP, though with very different histories, political architecture and economic policies. On the other hand, the U.K. provides an example of a consolidated monetary union in a traditionally centralised and well-integrated political system; which makes it a good benchmark to compare with the other more decentralised monetary unions mentioned above.
The four partial or sub-indices are: fiscal performance, cycle synchronicity, competitiveness, and monetary dispersion (for more details see the table below). The indices will help us recognise the partial developments that contributed the most to the internal asymmetries in each monetary area, and thus provide insights into the future implementation of reforms in the respective area.
THE PARTIAL INDICES
The cycle synchronicity sub-index indicates the homogeneity of the business cycles. It will provide insights into the economic links of the respective regions/states forming the monetary area.
The public finance sub-index is expected to show the extent of dispersion in government deficit and debt. It will also indicate whether the efforts to improve the public finances dispersion in the years after the 2008-09 crisis have been successful.
The competitiveness sub-index shows the relative effect of changes in prices and costs across regions/states in each monetary area. It is an essential indicator for assessing the formation of imbalances within a monetary union.
The monetary dispersion index studies the rate of growth in broad money supply and credit in the different states/regions of the monetary area.
Acknowledgments: We would like to thank the IIMR research assistants for their contribution to the update of the datasets needed to build up our indices; in particular, Shivani Pradhan, Ibrahim Hakim and Alessandro Venieri.
Authorship and how to quote: This is an IIMR project coordinated by Dr Juan Castaneda and based on his research with Professor Pedro Schwartz on this topic:
- ‘How Functional is the Eurozone? An Index of European Economic Integration Through the Single Currency’. October 2017. Economic Affairs 37 (3).
- ‘An optimality index of the single currency: internal asymmetries within the eurozone since 1999’. In Castaneda, Roselli and Wood (eds.): The Economics of Monetary Unions. Past Experiences and the Eurozone. Chapter 7. 2020. Routledge.