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Type: Journal article
Title: Monetary union: A welfare based approach
Author: Carre, M.
Collard, F.
Citation: European Economic Review, 2003; 47(3):521-552
Publisher: Elsevier Science BV
Issue Date: 2003
ISSN: 0014-2921
Statement of
Martine Carré and Fabrice Collard
Abstract: This article attempts to shed light on the consequences of the transition to EMU for individual welfare following specific shocks. To this end, we develop a two country intertemporal general equilibrium model that extends the Obstfeld and Rogoff (Journal of Political Economy 103 (3) (1995) 624) specification to nominal rigidities through price adjustment costs and pricing-to-market behavior. We show that, when facing a positive asymmetric permanent shock to either technology or government expenditures occurring in one country, implementing a monetary union is beneficial to the households living in this economy. Conversely, it is detrimental to foreigners. Further, a sensitivity analysis shows that if the gains/losses to implementing monetary union are qualitatively robust when facing changes in the degree of nominal rigidities and the elasticity of substitution between foreign and domestic goods, they are quite sensitive to the degree of pricing-to-market in the economy.
Keywords: Asymmetric shocks; Flexible exchange rate; Monetary union; Pricing-to-market
RMID: 0020095727
DOI: 10.1016/S0014-2921(01)00170-2
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Appears in Collections:Economics publications

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