Does a Currency Union Need a Capital Market Union? Risk Sharing via Banks and Markets
Thomas Philippon and
No 14220, CEPR Discussion Papers from C.E.P.R. Discussion Papers
We compare risk sharing in response to demand and supply shocks in four types of currency unions: segmented markets; a banking union; a capital market union; and complete financial markets. We show that a banking union is efficient at sharing all domestic demand shocks (deleveraging, fiscal consolidation), while a capital market union is necessary to share supply shocks (productivity and quality shocks). Using a calibrated model we provide evidence of substantial welfare gains from a banking union and, in the presence of supply shocks, from a capital market union.
Keywords: Banking Union; capital market union; Currency Union; incomplete markets; Risk Sharing (search for similar items in EconPapers)
JEL-codes: E44 F36 F45 (search for similar items in EconPapers)
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