Does a Currency Union Need a Capital Market Union? Risk Sharing via Banks and Markets

Joseba Martinez, Thomas Philippon () and Markus Sihvonen

No 26026, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: 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.

JEL-codes: E5 F02 F3 F40 (search for similar items in EconPapers)
Date: 2019-06
New Economics Papers: this item is included in nep-mac, nep-opm and nep-ore
Note: AP EFG IFM ME
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Citations: View citations in EconPapers (3)

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Working Paper: Does a Currency Union Need a Capital Market Union? Risk Sharing via Banks and Markets (2019)
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