Asymmetric Shocks and Monetary Union

Martine Carré and Fabrice Collard

Papiers d'Economie Mathématique et Applications from Université Panthéon-Sorbonne (Paris 1)

Abstract: This article intends to study the potential benefit of moving from a flexible exchange rate regime to a monetary union. To this end, we develop a two countries intertemporal general equilibrium model. We extend the Obstfeld and Rogoff [1995a] specification by introducing both physical capital accumulation and nominal rigidities through price adjustment costs within a monopolistic competition framework. We show that instituting a monetary union allows to reduce the wealth gaps between countries following asymmetric technology and fiscal shocks, whenever their persistence is high enough.

Keywords: MONETARY AREAS; EXCHANGE RATE (search for similar items in EconPapers)
JEL-codes: F41 F42 (search for similar items in EconPapers)
Pages: 28 pages
Date: 1998
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Citations: View citations in EconPapers (3)

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Working Paper: Asymmetric shocks and monetary union (1998)
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Persistent link: https://EconPapers.repec.org/RePEc:fth:pariem:98.25

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