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Endogenously Asymmetric Demand Shocks in a Monetary Union

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  • Loisel, Olivier

    ()
    (CREST-LMA, Paris, France)

Abstract

This paper presents a two-country two-industry monetary model, with intermediate inputs and transport costs, which builds a bridge between the New Open Economy Macroeconomics and the New Economic Geography literatures. Endogenously asymmetric shocks arise in this model when the exchange rate regime in force fosters the concentration of each industry in one country, thus turning industry-specific shocks into country-specific shocks. Because of the conjunction of substitution and/or income effects, endogenously asymmetric demand shocks are found more likely to arise in a monetary union than under a flexible exchange rate regime.

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Bibliographic Info

Article provided by Center for Economic Integration, Sejong University in its journal Journal of Economic Integration.

Volume (Year): 20 (2005)
Issue (Month): ()
Pages: 746-770

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Handle: RePEc:ris:integr:0339

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Web page: http://econo.sejong.ac.kr/
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Related research

Keywords: Asymmetric shocks; Endogenous specialization; Optimum currency area;

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  1. Andrew K. Rose, 1999. "One Money, One Market: Estimating the Effect of Common Currencies on Trade," NBER Working Papers 7432, National Bureau of Economic Research, Inc.
  2. Maurice Obstfeld & Kenneth Rogoff, 2000. "New Directions for Stochastic Open Economy Models," International Finance 0004002, EconWPA.
  3. Frankel, Jeffrey A. & Rose, Andrew K., 1997. "Is EMU more justifiable ex post than ex ante?," European Economic Review, Elsevier, vol. 41(3-5), pages 753-760, April.
  4. Jeffrey A. Frankel & Andrew K. Rose, 1996. "The Endogeneity of the Optimum Currency Area Criteria," NBER Working Papers 5700, National Bureau of Economic Research, Inc.
  5. Luca Antonio Ricci, 1997. "Exchange Rate Regimes and Location," IMF Working Papers 97/69, International Monetary Fund.
  6. Andrew K. Rose & Eric van Wincoop, 2001. "National Money as a Barrier to International Trade: The Real Case for Currency Union," American Economic Review, American Economic Association, vol. 91(2), pages 386-390, May.
  7. Jean IMBS, 1998. "Fluctuations, Bilateral Trade and the Exchange Rate Regime," Cahiers de Recherches Economiques du Département d'Econométrie et d'Economie politique (DEEP) 9906, Université de Lausanne, Faculté des HEC, DEEP, revised Nov 1998.
  8. Lionel Fontagné & Michael Freudenberg, 1999. "Endogenous Symmetry of Shocks in a Monetary Union," Open Economies Review, Springer, vol. 10(3), pages 263-287, July.
  9. Luca Ricci, 2006. "Uncertainty, Flexible Exchange Rates, and Agglomeration," Open Economies Review, Springer, vol. 17(2), pages 197-219, April.
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