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The Welfare Gains of Trade Integration in the European Monetary Union

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  • Stéphane Auray

    (GREMARS, Unversité de Lille 3 and CIRPEE, Maison de la Recherche, Domaine Universitaire du Pont de Bois, BP 149, 59653 Villeneuve d'Ascq cedex, France)

  • Aurélien Eyquem

    (CREM, Université de Rennes 1, 7, place Hoche, 35065 Rennes Cedex, France)

  • Jean-Christophe Poutineau

    (CREM, Université de Rennes 1, 7, place Hoche, 35065 Rennes Cedex, France)

Abstract

This paper evaluates the welfare gains arising from a deeper trade integration in the European Monetary Union. To do this, the European Monetary Union is represented in a realistic way by an intertemporal general equilibrium model with incomplete financial markets, sticky prices and home bias both in private consumption and production. The model is estimated and globally not rejected by the data. Two main results emerge : (i) an increase in vertical (intermediate goods) trade implies welfare gains while (ii) an increase in horizontal trade implies welfare losses.

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Bibliographic Info

Paper provided by Groupe d'Analyse et de Théorie Economique (GATE), Centre national de la recherche scientifique (CNRS), Université Lyon 2, Ecole Normale Supérieure in its series Working Papers with number 0927.

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Length: 30 pages
Date of creation: 2009
Date of revision:
Handle: RePEc:gat:wpaper:0927

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Keywords: trade integration; inflation differentials; welfare analysis; optimal currency areas;

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