The impact of monetary union on trade prices

Richard E. Baldwin (), Robert Anderton () and Daria Taglioni ()
Additional contact information
Richard E. Baldwin: University of Geneva - Graduate Institute of International Studies (HEI), CH-1202 Geneva, Switzerland., http://graduateinstitute.ch/fusion/new/institut/mission/
Robert Anderton: European Central Bank, Postfach 160319, 60311 Frankfurt am Main, Germany., http://www.ecb.europa.eu/home/html/index.en.html

No 238, Working Paper Series from European Central Bank

Abstract: Two seemingly unconnected empirical results suggest an intriguing mechanism. First, economic integration helps harmonize prices internationally, with trade being the primary channel (Rogoff 1996, Goldberg and Knetter 1997). Second, monetary union may greatly increase the amount of trade among members (Rose 2001). Putting these together, we see that formation of a monetary union may induce changes that help harmonise inflation rates. The effect might be large if the elimination of exchange rate volatility simultaneously leads to a large increase in intra-union trade and a big increase in the speed at which price shocks are transmitted across members' goods markets. This paper investigates part of this mechanism and finds that monetary union may indeed result in faster cross-border transmission of price movements via the import and export price channel which, in turn, would tend to homogenise price movements across the member countries of a monetary union. JEL Classification: D40; F15; F31.

Keywords: Exchange rate volatility; monetary union; market segmentation; no-arbitrage bands; harmonisation of price movements. (search for similar items in EconPapers)
Date: Written 2003-06
View list of references View citations in EconPapers

Downloads: (external link)
http://www.ecb.europa.eu/pub/pdf/scpwps/ecbwp238.pdf (application/pdf)

Related works:
Working Paper: The Impact of Monetary Union on Trade Prices (2003)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Persistent link: http://EconPapers.repec.org/RePEc:ecb:ecbwps:20030238

Ordering information: This working paper can be ordered from
Press and Information Division, European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany

Access Statistics for this paper

More papers in Working Paper Series from European Central Bank
Address: Postfach 16 03 19, Frankfurt am Main, Germany
Contact information at EDIRC.
Series data maintained by Official Publications ().