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THE WELFARE GAINS OF TRADE INTEGRATION IN THE EUROPEAN MONETARY UNION

  • Stéphane Auray (a1), Aurélien Eyquem (a2) and Jean-Christophe Poutineau (a3)
Abstract

This paper evaluates the welfare gains arising from 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 in production. The model is estimated and not rejected by the data. Two main results emerge: (i) an increase in vertical trade (occuring at the early stage of the production process) implies welfare gains whereas (ii) an increase in horizontal trade (occuring at the late stage of the production process) implies welfare losses.

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Address correspondence to: Stéphane Auray, Universités Lille Nord de France, Domaine Universitaire du Pont de Bois–BP 60149, 59653 Villeneuve d'Ascq Cedex, France; e-mail: stephane.auray@gmail.com.
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Macroeconomic Dynamics
  • ISSN: 1365-1005
  • EISSN: 1469-8056
  • URL: /core/journals/macroeconomic-dynamics
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