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Does a Currency Union Need a Capital Market Union?

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  • Thomas Philippon

    (New York University)

  • Joseba Martinez

    (New York University)

Abstract

We study financial linkages and risk sharing in the context of the Eurozone crisis. We consider four types of currency unions: a currency union with (potentially) segmented markets; a banking union; a capital market union; and a currency union with complete financial markets. We then analyze how these economies respond to deleveraging shocks and to technology shocks. We find that a banking union is enough to deal with public and private deleveraging shocks, but a capital market union is necessary to approximate the complete market allocation when there are shocks that affect productivity or the terms of trade

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  • Thomas Philippon & Joseba Martinez, 2015. "Does a Currency Union Need a Capital Market Union?," 2015 Meeting Papers 501, Society for Economic Dynamics.
    • Handle: RePEc:red:sed015:501
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    JEL classification:

    • F45 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Macroeconomic Issues of Monetary Unions
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration

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