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Endogenously asymmetric demand shocks in a monetary union

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  • Loisel, Olivier

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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Paper provided by CEPREMAP in its series CEPREMAP Working Papers (Couverture Orange) with number 0405.

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Length: 24 pages
Date of creation: 2004
Date of revision:
Handle: RePEc:cpm:cepmap:0405

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  1. Rose, Andrew K, 1999. "One Money, One Market: Estimating the Effect of Common Currencies on Trade," CEPR Discussion Papers, C.E.P.R. Discussion Papers 2329, C.E.P.R. Discussion Papers.
  2. Luca Antonio Ricci, 1997. "Exchange Rate Regimes and Location," IMF Working Papers, International Monetary Fund 97/69, International Monetary Fund.
  3. Obstfeld, Maurice & Rogoff, Kenneth, 2000. "New directions for stochastic open economy models," Journal of International Economics, Elsevier, Elsevier, vol. 50(1), pages 117-153, February.
  4. Jean IMBS, 1998. "Fluctuations, Bilateral Trade and the Exchange Rate Regime," Cahiers de Recherches Economiques du Département d'Econométrie et d'Economie politique (DEEP), Université de Lausanne, Faculté des HEC, DEEP 9906, Université de Lausanne, Faculté des HEC, DEEP, revised Nov 1998.
  5. Luca Antonio Ricci, 1998. "Uncertainty, Flexible Exchange Rates, and Agglomeration," IMF Working Papers, International Monetary Fund 98/9, 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, American Economic Association, vol. 91(2), pages 386-390, May.
  7. Lionel Fontagné & Michael Freudenberg, 1999. "Endogenous Symmetry of Shocks in a Monetary Union," Open Economies Review, Springer, Springer, vol. 10(3), pages 263-287, July.
  8. Frankel, Jeffrey A. & Rose, Andrew K., 1997. "Is EMU more justifiable ex post than ex ante?," European Economic Review, Elsevier, Elsevier, vol. 41(3-5), pages 753-760, April.
  9. Frankel, Jeffrey A & Rose, Andrew K, 1996. "The Endogeneity of the Optimum Currency Area Criteria," CEPR Discussion Papers, C.E.P.R. Discussion Papers 1473, C.E.P.R. Discussion Papers.
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