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EMU, EU, Market Integration and Consumption Smoothing

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  • Atanas Christev

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  • Jacques Melitz

    ()

Abstract

By taking a new approach to the study of the impact of EMU on consumption smoothing, centering on consumption volatility and therefore on smoothing more directly, we find that even though EMU tends to smooth consumption, it is not through cross-country property and claims. Rather it comes through the promotion of the tradability of goods, capital in particular: specifically, the encouragement of price competition, contestable home markets, ability to borrow and buy insurance at home, and the harmonization of regulations. Some of the consumption smoothing may also depend on EU membership rather than EMU as such but EMU adds to it. As a fundamental part of the analysis, the paper uses a new index of currency union which focuses on the ratio of trade with other countries sharing the same currency relative to total foreign trade. Copyright Springer Science+Business Media New York 2013

Suggested Citation

  • Atanas Christev & Jacques Melitz, 2013. "EMU, EU, Market Integration and Consumption Smoothing," Open Economies Review, Springer, vol. 24(5), pages 789-818, November.
  • Handle: RePEc:kap:openec:v:24:y:2013:i:5:p:789-818
    DOI: 10.1007/s11079-013-9269-5
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    Keywords

    Capital market integration; Consumption smoothing; Currency union; European Monetary Union; European Union; F36; F41; E00; G10;

    JEL classification:

    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • E00 - Macroeconomics and Monetary Economics - - General - - - General
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)

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