Financial integration and macroeconomic adjustments in a monetary union
In a monetary union, such as the euro zone, adjustments facing asymmetric evolutions are more difficult due to fixed intra-European exchange rates. Well-integrated capital markets, with portfolio diversification and intrazone credit, would constitute a powerful adjustment mechanism, according to the "international risk-sharing" approach. A different approach is adopted, based on a "stock-flow consistent" model of a monetary union along the lines of Godley and Lavoie (2007). Two results can be underlined. Holding foreign assets has a stabilizing role, but the capital income stabilizing coefficient seems small. By contrast, intrazone credit seems to have no specific stabilization effects.
Volume (Year): 33 (2010)
Issue (Month): 2 (January)
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