This paper shows that bilateral currency crises reduce bilateral trade up to 50% after controlling for the depreciation rate. Using a trade model, these reductions are connected to the welfare costs of currency crises. The results show that a single currency crisis can result in welfare...

In this paper, we study the impact of labor mobility on the welfare cost of currency union in an open economy New Keynesian model. We find that the relationship between labor mobility and exchange rate flexibility depends on the source of asymmetric regional shocks. With demand shocks, labor...