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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.

Suggested Citation

  • Stéphane Auray & Aurélien Eyquem & Jean-Christophe Poutineau, 2009. "The Welfare Gains of Trade Integration in the European Monetary Union," Working Papers 0927, Groupe d'Analyse et de Théorie Economique Lyon St-Étienne (GATE Lyon St-Étienne), Université de Lyon.
    • Handle: RePEc:gat:wpaper:0927
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    Cited by:

    1. Lama, Ruy & Rabanal, Pau, 2014. "Deciding to enter a monetary union: The role of trade and financial linkages," European Economic Review, Elsevier, vol. 72(C), pages 138-165.
    2. Ionel Bostan & Otilia-Roxana Oprea & Ovidiu Stoica, 2020. "Approaching Monetary Integration in the Context of the Imperative to Ensure the Sustainable Growth in the EU," Sustainability, MDPI, vol. 12(17), pages 1-15, August.

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    More about this item

    Keywords

    trade integration; inflation differentials; welfare analysis; optimal currency areas;
    All these keywords.

    JEL classification:

    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • F47 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Forecasting and Simulation: Models and Applications

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