Does a currency union need a capital market union

Economics

NBER Working Paper

Martinez J; Philippon T; Sihvonen M

Joseba Martinez

2019

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

26026

NBER Working Paper

No