Asymmetric Shocks and Monetary Union
AbstractThis article intends to study the potential benefit of moving from a flexible exchange rate regime to a monetary union. To this end, we develop a two countries intertemporal general equilibrium model. We extend the Obstfeld and Rogoff [1995a] specification by introducing both physical capital accumulation and nominal rigidities through price adjustment costs within a monopolistic competition framework. We show that instituting a monetary union allows to reduce the wealth gaps between countries following asymmetric technology and fiscal shocks, whenever their persistence is high enough.
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Bibliographic InfoPaper provided by UniversitÃ© PanthÃ©on-Sorbonne (Paris 1) in its series Papiers d'Economie MathÃ©matique et Applications with number 98.25.
Length: 28 pages
Date of creation: 1998
Date of revision:
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MONETARY AREAS ; EXCHANGE RATE;
Find related papers by JEL classification:
- F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
- F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission
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