Economics, 3rd Edition

Symmetric Macroeconomic Shocks 

Note that, in describing the costs of belonging to a monetary 

union, we have used the example of a positive demand shock in one country and a simultaneous  negative 

demand shock in another. A similar analysis would have followed if we had simply allowed either a 

 positive or a negative demand shock in one country and no shock at all in the other country. The central 

point was that the demand shock was asymmetric in the sense that it impacted differently on different 

members of the currency union, requiring different short-run policy responses. Clearly, if the shock were 

symmetric there would be no problem. If, for example, aggregate demand rose simultaneously in all 

member  countries, increasing expected future inflation, then a policy of raising interest rates would be 

welcomed by all members of the monetary union. This would be the case if the economic cycles of each 

of the countries making up the currency were synchronized in the sense that the various economies 

tended to enter recession at the same time and enter the recovery phase of the cycle at the same time, 

so that disagreements about the best interest rate policy are less likely to occur.