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The Welfare Gains of Trade Integration in the European Monetary Union

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  • Stéphane Auray

    ()
    (Université Lille 3 (GREMARS), Université de Sherbrooke (GREDI) and CIRPÉE)

  • Aurélien Eyquem

    (GATE, UMR 5824, Université de Lyon and Ecole Normale Supérieure Lettres et Sciences Humaines, France)

  • Jean-Christophe Poutineau

    (CREM, UMR 6211, Université de Rennes 1 and Ecole Normale Supérieure de Cachan, 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 in both private consumption and production. The model is estimated and 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 (final goods) trade implies welfare losses.

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File URL: http://gredi.recherche.usherbrooke.ca/wpapers/GREDI-0810.pdf
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Bibliographic Info

Paper provided by Departement d'Economique de la Faculte d'administration à l'Universite de Sherbrooke in its series Cahiers de recherche with number 08-10.

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Length: 27 pages
Date of creation: 2008
Date of revision:
Handle: RePEc:shr:wpaper:08-10

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

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