University of Oulu

Finland, Eurozone and asymmetric shocks

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Author: Itäkare, Ossi1
Organizations: 1University of Oulu, Oulu Business School, Department of Economics, Economics
Format: ebook
Version: published version
Access: open
Online Access: PDF Full Text (PDF, 1.6 MB)
Pages: 103
Persistent link:
Language: English
Published: Oulu : O. Itäkare, 2020
Publish Date: 2020-05-22
Thesis type: Master's thesis
Tutor: Pikkarainen, Pentti
Reviewer: Korhonen, Marko
Pikkarainen, Pentti


This thesis has three following theoretical objectives. The first objective is to introduce the costs and benefits of a monetary union. The second objective is to introduce the concept of asymmetric shocks. The third objective is to introduce optimum currency areas (OCA) theory and its development from the 1960s. The theoretical framework is elaborated and supported by literature from notable economists and researchers.

This thesis has two following objectives on Finland and its EMU-membership. Firstly to introduce Finland’s official economic report about the costs and benefits of the EMU ex ante and secondly to introduce 2010s Finnish economists’ reviews on Finland’s EMU-membership.

The empirical objectives of this thesis are to find out potential asymmetries in GDP trend deviations among the eleven original EMU-countries and Greece. For the second empirical objective, this thesis examines whether economic integration, in terms of GDP trend deviations, has increased in the above-mentioned countries during the common currency and lastly to find out how GDP trend deviations affect the unemployment rate in these countries, using a simple regression model.

According to the empirical results of this thesis, economic integration among the original EMU-countries has increased during the common currency. Hence, the member states have faced less asymmetric GDP shocks in the euro-period than before it. The finding supports the economic argument of the Eurozone. Germany is an interesting exception, as its GDP trend deviations are explicitly weakly correlated to the other member states. In addition, Germany and Greece together have the only negative GDP trend deviation correlation of all the EMU-countries. The results also depict that the economic integration of Finland has increased during the time of the common currency.

Economic stability, with respect to the size of GDP trend deviations, has not increased during the common currency. The results show that there are remarkable differences in how sensitively the labor markets in different countries react to the out of trend GDP shocks. Also, the member states have large differences in GDP growth rates, which can in the long run stress economic cohesion, thus widen the gap of living standards.

The empirical results discovered here can be widely used for further examination. Especially deeper country-specific investigation could provide reasoning for various smaller observations, for example, the close relation of Finland and Spain. Also, the results can be used as a comparison for similar research.

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Copyright information: © Ossi Itäkare, 2020. This publication is copyrighted. You may download, display and print it for your own personal use. Commercial use is prohibited.