Markets Integration and Macroeconomic Dispersion in a Monetary Union

Aurélien Eyquem and Jean-Christophe Poutineau (jean-christophe.poutineau@univ-rennes1.fr)

No 2010011, Discussion Papers (REL - Recherches Economiques de Louvain) from Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES)

Abstract: Using a two country DGSE combining nominal rigidities and financial frictions, we show that the persistence of output and inflation asymmetries observed since 1999 in an increasingly integrated EMU is not necessarily puzzling. Only the integration of final goods markets unambiguously leads to a reduction of asymmetries while the integration of final goods markets and the integration of financial markets increase the dispersion of inflation rates and business cycles. The result builds on the intensive use of financial markets, i.e. the current account, to adjust externally and smooth the consequences of asymmetric shocks. This mechanism implies a disconnection of country-level outputs and /or inflation rates to ensure that agents return to their initial asset position in the long run.

Keywords: Monetary union; Markets integration; Trade openness; inflation dispersion; output dispersion (search for similar items in EconPapers)
JEL-codes: E32 F32 F41 (search for similar items in EconPapers)
Pages: 25
Date: 2010-03-01
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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Related works:
Journal Article: Markets Integration and Macroeconomic. Dispersion in a Monetary Union (2010)
Working Paper: Markets integration and macroeconomic dispersion in a monetary union (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:ctl:louvre:2010011

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