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Markets Integration and Macroeconomic Dispersion in a Monetary Union*

Published online by Cambridge University Press:  17 August 2016

Aurélien Eyquem  and
Jean-Christophe Poutineau
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Summary

Using a two–country DGSE combining nominal rigidities and financial frictions, we show that the persistence of output and inflation asymmetries observed since 1999 in an increasingly integrated EMU is not necessarily puzzling. Only the integration of intermediate goods markets unambiguously leads to a reduction of asymmetries while the integration of finals goods markets and the integration of financial markets increase the dispersion of inflation rates and business cycles. The result builds on the intensive use of financial markets, i.e. the current account, to adjust externally and smooth the consequences of asymmetric shocks. This mechanism implies a disconnection of country-level outputs and/or inflation rates to ensure that agents return to their initial asset position in the long run.

Résumé

Résumé

A l'aide d'un modèle d'équilibre général combinant rigidités nominales et imperfections financières, on montre que la persistance d'hétérogénéités conjoncturelles observée dans l'UEM depuis 1999 en dépit d'une meilleure intégration des marchés n'est nécessairement paradoxale. Selon nos résultats, seule une meilleure intégration des processus productifs réduit significativement la dispersion des cycles ou des taux d'inflation. Une meilleure intégration du marché des biens et services ou des marchés financiers conduit les économies à s'ajuster plus fortement par le biais du compte courant suite à des chocs asymétriques. Ce mécanisme est susceptible d'accroître la dispersion des cycles et des taux d'inflation entre pays membres pour leur permettre de respecter leur contrainte budgétaire intertemporelle.

Keywords

Union Économique et Monétairecompte courantasymétries conjoncturellesMonetary unionMarkets integrationTrade opennessInflation dispersionOutput dispersion

JEL classification

F41: Open Economy Macroeconomics F32: Current Account Adjustment • Short-Term Capital Movements E32: Business Fluctuations • Cycles
Type
Research Article
Information
Recherches Économiques de Louvain/ Louvain Economic Review , Volume 76 , Issue 1 , 2010 , pp. 5 - 30
Copyright
Copyright © Université catholique de Louvain, Institut de recherches économiques et sociales 2010 

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Footnotes

**

GATE, UMR CNRS 5824, Université de Lyon and Ecole Normale Supérieure de Lyon, 15 Parvis René Descartes, BP 7000, 69342 Lyon Cedex, France. Email: aurelien.eyquem@ens-lyon.fr

***

CREM, UMR CNRS 6211, Université de Rennes 1 and Ecole Normale Supérieure de Cachan, 7 place Hoche, 35065 Rennes Cedex, France. Email: jean-christophe.poutineau@univ-rennes1.fr.

*

We would like to thank the editor, two anomynous referees, James Anderson, and Stephane Auray for insightful comments and suggestions.

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