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The dynamic effects of a currency union on trade

Author

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  • Bergin, Paul R.
  • Lin, Ching-Yi

Abstract

The response of trade to a monetary union is a dynamic process. An empirical study of the European monetary union finds that the extensive margin of trade in new goods responded several years ahead of EMU implementation and ahead of overall trade volume. A dynamic rational expectations trade model shows that early entry of new firms in anticipation is explainable as a rational forward-looking response to news. The model helps identify which types of trading frictions are reduced by a currency union, and shows how new entry can be affected by uncertainty about EMU.

Suggested Citation

  • Bergin, Paul R. & Lin, Ching-Yi, 2012. "The dynamic effects of a currency union on trade," Journal of International Economics, Elsevier, vol. 87(2), pages 191-204.
  • Handle: RePEc:eee:inecon:v:87:y:2012:i:2:p:191-204
    DOI: 10.1016/j.jinteco.2012.01.005
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    More about this item

    Keywords

    Currency union; Extensive margin of trade; Trade costs;

    JEL classification:

    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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