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Asymmetric shocks and monetary union

Author

Listed:
  • Martine Carré

    (MAD - Université Paris 1)

  • Fabrice Collard

    (CEPREMAP)

Abstract

This article intends to study the potential benefit of moving from a flexible exchange rate regime to a monetary union. To this end, we develop a two countries intertemporal general equilibrium model. We extend the Obstfeld and Rogoff (1995a) specification by introducing both physical capital accumulation and nominal rigidities through price adjustment costs within a monopolistic competition framework. We show that instituting a monetary union allows to reduce the wealth gaps between countries following asymmetric technology and fiscal shocks, whenever their persistence is high enough. We then establish that as nominal rigidities increase, the gain from implementing a monetary union decreases in the presence of asymmetric technology shocks, whereas it increases in the presence of fiscal shocks

Suggested Citation

  • Martine Carré & Fabrice Collard, 1998. "Asymmetric shocks and monetary union," Cahiers de la Maison des Sciences Economiques 98025, Université Panthéon-Sorbonne (Paris 1).
    • Handle: RePEc:mse:wpsorb:98025
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    File URL: https://shs.hal.science/halshs-04700625
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    Cited by:

    1. Fabio Ghironi, 2000. "Towards new open economy macroeconometrics," Staff Reports 100, Federal Reserve Bank of New York.
    2. Fabio Ghironi, 2000. "Understanding Macroeconomic Interdependence: Do We Really Need to Shut Off the Current Account?," Boston College Working Papers in Economics 465, Boston College Department of Economics, revised 14 Aug 2003.

    More about this item

    Keywords

    Asymmetrical shocks; exchange rate regimes; monetary union;
    All these keywords.

    JEL classification:

    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission

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