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Does a Currency Union Need a Capital Market Union?

Thomas Philippon () and Joseba Martinez
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Joseba Martinez: New York University

No 501, 2015 Meeting Papers from Society for Economic Dynamics

Abstract: We study financial linkages and risk sharing in the context of the Eurozone crisis. We consider four types of currency unions: a currency union with (potentially) segmented markets; a banking union; a capital market union; and a currency union with complete financial markets. We then analyze how these economies respond to deleveraging shocks and to technology shocks. We find that a banking union is enough to deal with public and private deleveraging shocks, but a capital market union is necessary to approximate the complete market allocation when there are shocks that affect productivity or the terms of trade

New Economics Papers: this item is included in nep-mon and nep-opm
Date: 2015
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