Labor Immobility and the Transmission Mechanism of Monetary Policy in a Monetary Union

Isabel Correia () and Adão, Bernardino
Authors registered in the RePEc Author Service: Bernardino Adao

No 8068, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: It is believed that a shock, common to a set of countries with identical fundamentals, has identical outcomes across countries. We show that in general, when specialization in production is such that a common shock creates a missing role for labor mobility across countries, the terms of trade of any country reacts to the shock. This is the case even if state contingent assets can be traded across countries. The transmission mechanism of a monetary shock in a monetary union has in this case an additional channel, the terms of trade. We also show that the country outcomes are significantly different, when compared with the effect of the shock on the union's aggregate. Monetary shocks impose cycles with higher volatility in

Keywords: Idiosyncratic effects; Labor immobility; Monetary union; Transmission mechanisms (search for similar items in EconPapers)
JEL-codes: E31 E41 E58 E62 (search for similar items in EconPapers)
Date: 2010-10
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Related works:
Journal Article: Labor immobility and the transmission mechanism of monetary policy in a monetary union (2013)
Working Paper: Labor Immobility and the Transmission Mechanism of Monetary Policy in a Monetary Union (2010)
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