Does a currency union need a capital market union?

Joseba Martinez, Thomas Philippon and Markus Sihvonen

Journal of International Economics, 2022, vol. 139, issue C

Abstract: We compare risk sharing in response to demand and supply shocks in four types of currency unions: segmented markets; a money market union; a capital market union; and complete financial markets. We show that a money market union is efficient at sharing domestic demand shocks (deleveraging, fiscal consolidation), while a capital market union is necessary to share supply shocks (productivity and quality shocks). In a numerical exercise, we find that the welfare gain of moving from segmented markets to a money market union is of roughly similar magnitude to that of moving from a money market to a capital market union.

Keywords: Risk sharing; Currency union; Banking union; Capital market union; Incomplete markets (search for similar items in EconPapers)
JEL-codes: E44 F36 F45 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Related works:
Working Paper: Does a Currency Union Need a Capital market Union? (2019)
Working Paper: Does a Currency Union Need a Capital Market Union? (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:inecon:v:139:y:2022:i:c:s0022199622001076

DOI: 10.1016/j.jinteco.2022.103675

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