Deciding to enter a monetary union : the role of trade and financial linkages

Fabian Bornhorst and Ashoka Mody

This paper evaluates the role of trade and financial linkages in the decision to enter a monetary union. We estimate a two-country DSGE model for the U.K. economy and the euro area, and use the model to compute the welfare trade-offs from joining the euro. We evaluate two alternative scenarios. In the first one, we consider a reduction of trade costs that occurs after the adoption of a common currency. In the second, we introduce interest rate spread shocks of the same magnitude as the ones observed during the recent debt crisis in Europe. The reduction of trade costs generates a net welfare g

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Year of publication:	2012
Authors:	Lama C., Ruy ; Rabanal, Pau
Publisher:	Washington, DC : Internat. Monetary Fund
Subject:	Währungsunion \| Monetary union \| Wohlfahrtsanalyse \| Welfare analysis \| DSGE-Modell \| DSGE model \| Großbritannien \| United Kingdom \| Eurozone \| Euro area

Extent:	Online-Ressource (PDF-Datei: 51 S., 1,485 KB) graph. Darst.
Series:	IMF working papers. - Washington, DC : IMF, ZDB-ID 2108494-4. - Vol. 12/240 IMF Working Papers
Type of publication:	Book / Working Paper
Type of publication (narrower categories):	Arbeitspapier ; Working Paper ; Graue Literatur ; Non-commercial literature
Language:	English
Notes:	Includes bibliographical references Systemvoraussetzungen: Acrobat Reader Cover; Contents; 1. Introduction; 2. The Model; 2.1 Households, International Assets Markets, and Staggered Wage Setting; 2.2 Firms; 2.3 Closing the Model; 3. Bayesian Estimation; 3.1 Data; 3.2 Model Dynamics and Data Transformations; 3.3 Estimation: Priors and Posteriors; Tables; Table 1 Calibrated Parameters; Table 2 Prior Distributions; Table 3 Posterior Distributions, structural parameters; Table 4 Posterior Distributions, shocks parameters; 4. Policy Analysis: Welfare Gains of Entering a Monetary Union; Table 5 Second Moments; Table 6 Steady State Effects and Welfare Gains Table 7 Business Cycle Effects and Welfare Gains5. Sensitivity Analysis; 6. Conclusions; Technical Appendix; References; Figures; Figure 1 Monetary Policy Rates in United Kingdom and the Euro Area: 1999-2011; Figure 2 Trade with Euro Area in France, Germany, Italy, Spain and the United Kingdom; Figure 3 Risk Premium in France, Italy, Spain the United Kingdom; Figure 4 Impulse Response Functions to 25 basis points increase in UIP Shock; Figure 5 Sensitivity Analysis of Welfare Electronic reproduction; Available via World Wide Web
ISBN:	978-1-4755-1143-7 ; 978-1-4755-1225-0 ; 978-1-4755-1143-7
Source:	ECONIS - Online Catalogue of the ZBW

Persistent link: https://www.econbiz.de/10009659826