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Does a currency union need a capital market union

Subject

Economics

Publishing details

NBER Working Paper

Authors / Editors

Martinez J; Philippon T; Sihvonen M

Biographies

Publication Year

2019

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

Series Number

26026

Series

NBER Working Paper