Does a currency union need a capital market union?
Journal
Journal of International Economics
Subject
Economics
Publishing details
Authors / Editors
Martinez J;Philippon T;Sihvonen M
Biographies
Publication Year
2022
Abstract
We compare risk sharing in response to demand and supply shocks in four types of currency unions: segmented markets; a money market union; a capital market union; and complete financial markets. We show that a money market union is efficient at sharing domestic demand shocks (deleveraging, fiscal consolidation), while a capital market union is necessary to share supply shocks (productivity and quality shocks). In a numerical exercise, we find that the welfare gain of moving from segmented markets to a money market union is of roughly similar magnitude to that of moving from a money market to a capital market union.
Available on ECCH
No
