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Monetary Union, Trade Integration, and Business Cycles in 19th Century Europe

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  • Marc Flandreau
  • Mathilde Maurel

Abstract

This paper studies the impact of monetary arrangements on trade integration and business cycle correlation in late 19th century Europe. We estimate a gravity model and show that tighter monetary integration was associated with substantially higher trade, as in recent studies using contemporary data. For instance, the Austro-Hungarian monetary union improved trade between member states by a factor of 3. To explain this, we build and estimate a simple model where greater monetary integration weakens the current account constraint by fostering business cycle co-movements. Copyright Springer Science + Business Media, Inc. 2005

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  • Marc Flandreau & Mathilde Maurel, 2005. "Monetary Union, Trade Integration, and Business Cycles in 19th Century Europe," Open Economies Review, Springer, vol. 16(2), pages 135-152, April.
    • Handle: RePEc:kap:openec:v:16:y:2005:i:2:p:135-152
    DOI: 10.1007/s11079-005-5872-4
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