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Monetary Union, Trade Integration, and Business Cycles in 19th Century Europe

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  • Marc Flandreau
  • Mathilde Maurel

Abstract

This paper studies the impact of monetary arrangements on trade integration and business cycle correlation in late 19th century Europe. We estimate a gravity model and show that tighter monetary integration was associated with substantially higher trade, as in recent studies using contemporary data. For instance, the Austro-Hungarian monetary union improved trade between member states by a factor of 3. To explain this, we build and estimate a simple model where greater monetary integration weakens the current account constraint by fostering business cycle co-movements. Copyright Springer Science + Business Media, Inc. 2005

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File URL: http://hdl.handle.net/10.1007/s11079-005-5872-4
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Bibliographic Info

Article provided by Springer in its journal Open Economies Review.

Volume (Year): 16 (2005)
Issue (Month): 2 (April)
Pages: 135-152

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Handle: RePEc:kap:openec:v:16:y:2005:i:2:p:135-152

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Web page: http://www.springerlink.com/link.asp?id=100323

Related research

Keywords: optimum currency areas; endogeneity; trade; business cycles; monetary union;

References

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  16. Jeffrey A. Frankel, 1997. "Regional Trading Blocs in the World Economic System," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 72.
  17. Mojon, Benoît & Kashyap, Anil K. & Angeloni, Ignazio & Terlizzese, Daniele, 2002. "Monetary Transmission in the Euro Area : Where Do We Stand?," Working Paper Series 0114, European Central Bank.
  18. McCallum, John, 1995. "National Borders Matter: Canada-U.S. Regional Trade Patterns," American Economic Review, American Economic Association, vol. 85(3), pages 615-23, June.
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