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Monetary Union, Trade Integration, and Business Cycles in 19th Century Europe

Marc Flandreau and Mathilde Maurel ()

Open Economies Review, 2005, vol. 16, issue 2, 135-152

Abstract: This paper studies the impact of monetary arrangements on trade integration and business cycle correlation in late 19th century Europe. We estimate a gravity model and show that tighter monetary integration was associated with substantially higher trade, as in recent studies using contemporary data. For instance, the Austro-Hungarian monetary union improved trade between member states by a factor of 3. To explain this, we build and estimate a simple model where greater monetary integration weakens the current account constraint by fostering business cycle co-movements. Copyright Springer Science + Business Media, Inc. 2005

Keywords: optimum currency areas; endogeneity; trade; business cycles; monetary union (search for similar items in EconPapers)
Date: 2005
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