Does a currency union need a capital market union?

Martinez, J, Philippon, T and Sihvonen, M (2022) Does a currency union need a capital market union? Journal of International Economics. ISSN 0022-1996 (In Press) OPEN ACCESS


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.

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Item Type: Article
Subject Areas: Economics
Date Deposited: 04 Oct 2022 11:19
Date of first compliant deposit: 04 Oct 2022
Last Modified: 04 Feb 2023 01:36

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