Publications of Sharma, S.C.

On the European monetary system: the spillover effects of German shocks and disinflation

We analyse the disinflationary experience between 1979-93 for two traditionally inflationary countries of the European Monetary System: France and Italy. For each country, a vector autoregressive model is estimated. Shocks in the model combine domestic and foreign sources. The latter capture the world oil price shocks as well as nominal and real shocks originating in Germany. Under investigation is the hypothesis that shocks originating in Germany have a spillover disinflationary effect in France and Italy. The empirical evidence provides support to the validity of this hypothesis. Furthermore, German shocks account for an important share of the total price variance in France and Italy. These results indicate that the interaction between countries of the European Monetary System has contributed to the success of the disinflationary experiences of the 1980s. The evidence sheds, therefore, some light on potential benefits that may be further realized as countries of the European Monetary System move towards their objective of achieving a single currency under a united monetary system.

Investigations into the macroeconomic interdependence of Western Europe: Is there evidence for two-tier Europe?

In this paper we investigate whether the degree of interdependence of some macroeconomic variables (real output, government expenditures, private consumption, trade flows, inflation rate, and money supply) supports the division of western European countries into two different blocks. We divide western European countries into core and periphery according to their geographical location in order to avoid the problem of characterizing the countries so that the results fit into preconceived ideas. Then we check the robustness of this division by a variety of econometric techniques, namely a structural vector autoregressive model, principal component analysis, and tests for common trends and common cycles among these variables. The results are not decisive, however there is some support for the core-periphery distinction.

Macroeconomic interdependence and integration in the Indian sub-continent

This study investigates macroeconomic interdependence of countries in the Indian subcontinent and discusses its implications on the possible integration schemes. Towards this goal, the interrelatedness, the degree of coherence and the long and short term movements in selected macroeconomic variables in seven countries of this region are explored. Moreover, in a dynamic structural vector autoregressive similar economic disturbances to satisfy one of the conditions for forming a currency area in the spirit of Mundell's theory. We observe that the degree of interdependence among countries of the Indian sub-continent is rather low. These countries should probably continue with liberalization efforts, which naturally lead to higher macro-interdependence among them, which would later create a solid ground for future integration efforts. Moreover, they should not experiment with pegging their exchange rates among each other, rather, in future, they should rely more on the floating rates.