EMU, EU, Market Integration and Consumption Smoothing

Atanas Christev and Jacques Melitz

Open Economies Review, 2013, vol. 24, issue 5, 789-818

Abstract: By taking a new approach to the study of the impact of EMU on consumption smoothing, centering on consumption volatility and therefore on smoothing more directly, we find that even though EMU tends to smooth consumption, it is not through cross-country property and claims. Rather it comes through the promotion of the tradability of goods, capital in particular: specifically, the encouragement of price competition, contestable home markets, ability to borrow and buy insurance at home, and the harmonization of regulations. Some of the consumption smoothing may also depend on EU membership rather than EMU as such but EMU adds to it. As a fundamental part of the analysis, the paper uses a new index of currency union which focuses on the ratio of trade with other countries sharing the same currency relative to total foreign trade. Copyright Springer Science+Business Media New York 2013

Keywords: Capital market integration; Consumption smoothing; Currency union; European Monetary Union; European Union; F36; F41; E00; G10 (search for similar items in EconPapers)
Date: 2013
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Working Paper: EMU, EU, Market Integration and Consumption Smoothing (2012)
Working Paper: EMU, EU, Market Integration and Consumption Smoothing (2012)
Working Paper: EMU, EU, Market Integration and Consumption Smoothing (2011)
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DOI: 10.1007/s11079-013-9269-5

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