The Welfare Gains of Trade Integration in the European Monetary Union

GATE Working Paper No. 09-27

30 Pages Posted: 17 Feb 2010 Last revised: 6 Apr 2011

See all articles by Stéphane Auray

Stéphane Auray

CREST-Ensai

Aurélien Eyquem

Université de Rennes 1, CREM

Jean‐Christophe Poutineau

Université de Rennes 1

Date Written: December 1, 2009

Abstract

This paper evaluates the welfare gains arising from a deeper trade integration in the European Monetary Union. To do this, the European Monetary Union is represented in a realistic way by an intertemporal general equilibrium model with incomplete financial markets, sticky prices and home bias both in private consumption and production. The model is estimated and globally not rejected by the data. Two main results emerge: (i) an increase in vertical (intermediate goods) trade implies welfare gains while (ii) an increase in horizontal trade implies welfare losses.

Keywords: trade integration, ináation differentials, welfare analysis, optimal currency areas

JEL Classification: F32, F41, F47

Suggested Citation

Auray, Stéphane and Eyquem, Aurélien and Poutineau, Jean-Christophe, The Welfare Gains of Trade Integration in the European Monetary Union (December 1, 2009). GATE Working Paper No. 09-27, Available at SSRN: https://ssrn.com/abstract=1553676 or http://dx.doi.org/10.2139/ssrn.1553676

Stéphane Auray (Contact Author)

CREST-Ensai ( email )

15 Boulevard Gabriel Peri
Malakoff Cedex, 1 92245
France

Aurélien Eyquem

Université de Rennes 1, CREM ( email )

7 Pl. Hoche
35065 Rennes Cedex

Jean-Christophe Poutineau

Université de Rennes 1 ( email )

11 Rue Jean Macé
Rennes, Rennes 35700
France

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