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Does a Currency Union Need a Capital market Union?

Author

Listed:
  • Joseba Martinez

    (London Business School)

  • Markus Sihvonen

    (Bank of Finland, Research Unit)

  • Thomas Philippon

    (New York University)

Abstract

Abstract We study financial linkages and risk sharing in four types of currency unions: segmented markets; a banking union; a capital market union; and complete financial markets. We analyze how these economies respond to various shocks. Broadly speaking, we find that a banking union is efficient at sharing demand shocks (deleveraging, fiscal consolidation), while a capital market union is necessary to share supply shocks (including quality/technology shocks). We present theoretical results where either type of union can exactly replicate the complete market allocation, as well as calibration of welfare gains.

Suggested Citation

  • Joseba Martinez & Markus Sihvonen & Thomas Philippon, 2019. "Does a Currency Union Need a Capital market Union?," 2019 Meeting Papers 822, Society for Economic Dynamics.
    • Handle: RePEc:red:sed019:822
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    Cited by:

    1. Engelbert Stockhammer & Collin Constantine & Severin Reissl, 2020. "Explaining the Euro crisis: current account imbalances, credit booms and economic policy in different economic paradigms," Journal of Post Keynesian Economics, Taylor & Francis Journals, vol. 43(2), pages 231-266, April.
    2. Abban, Stanley, 2020. "Currency Union as a Panacea for ills in Africa: A New Institutional Framework and Theoretical Consideration," MPRA Paper 105459, University Library of Munich, Germany.
    3. Jakub Danko & Erik Suchý, 2021. "The Financial Integration in the European Capital Market Using a Clustering Approach on Financial Data," Economies, MDPI, vol. 9(2), pages 1-19, June.

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