Quantifying the Benefits of Labor Mobility in a Currency Union

Christopher House (), Christian Proebsting and Linda Tesar ()

No 25347, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Unemployment differentials are bigger in Europe than in the United States. Migration responds to unemployment differentials, though the response is smaller in Europe. Mundell (1961) argued that factor mobility is a precondition for a successful currency union. We use a multi-country DSGE model with cross-border migration and search frictions to quantify the benefits of increased labor mobility in Europe and compare this outcome to a case of fully flexible exchange rates. Labor mobility and flexible exchange rates both work to reduce unemployment and per capita GDP differentials across countries provided that monetary policy is sufficiently responsive to national output.

JEL-codes: E24 E42 E52 E58 F15 F16 F22 F33 F45 (search for similar items in EconPapers)
Date: 2018-12
New Economics Papers: this item is included in nep-dge, nep-int, nep-mac, nep-mig, nep-opm and nep-ure
Note: EFG IFM ME
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Citations: View citations in EconPapers (21)

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Working Paper: Quantifying the Benefits of Labor Mobility in a Currency Union (2018)
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