Endogenously Asymmetric Demand Shocks in a Monetary Union

Olivier Loisel

Journal of Economic Integration, 2005, vol. 20, 746-770

Abstract:

This paper presents a two-country two-industry monetary model, with intermediate inputs and transport costs, which builds a bridge between the New Open Economy Macroeconomics and the New Economic Geography literatures. Endogenously asymmetric shocks arise in this model when the exchange rate regime in force fosters the concentration of each industry in one country, thus turning industry-specific shocks into country-specific shocks. Because of the conjunction of substitution and/or income effects, endogenously asymmetric demand shocks are found more likely to arise in a monetary union than under a flexible exchange rate regime.

Keywords: Asymmetric shocks; Endogenous specialization; Optimum currency area (search for similar items in EconPapers)
JEL-codes: F12 F15 F33 F41 R12 R13 (search for similar items in EconPapers)
Date: 2005
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Citations: View citations in EconPapers (1)

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Working Paper: Endogenously asymmetric demand shocks in a monetary union (2004)
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Persistent link: https://EconPapers.repec.org/RePEc:ris:integr:0339

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