IDEAS home Printed from https://ideas.repec.org/p/luc/wpaper/09-01.html
   My bibliography  Save this paper

Currency Unions and International Assistance

Author

Listed:
  • Pierre M. Picard
  • Tim Worrall

    (CREA, University of Luxembourg)

Abstract

This paper considers a simple stochastic model of international trade with three countries. Two of the tree countries are in an economic union. Comparisons are made between equilibrium welfare for these two countries under fixed and flexible exchange rate regimes. Within the model it is shown that flexible exchange rate regimes generate greater welfare. However, we then consider comparisons of welfare when the two countries also engage in some international assistance in order to share risk. Such risksharing is limited by enforcement constraints of cross border assistance. It is shown that, when one takes into account risk-sharing and limited commitment, fixed exchange rate regimes associated with a currency area can dominate flexible exchange rate regimes, which reverses the standard result.

Suggested Citation

  • Pierre M. Picard & Tim Worrall, 2009. "Currency Unions and International Assistance," DEM Discussion Paper Series 09-01, Department of Economics at the University of Luxembourg.
    • Handle: RePEc:luc:wpaper:09-01
    as

    Download full text from publisher

    File URL: http://wwwen.uni.lu/content/download/21062/260397/file/2009-01_Currency%20Unions%20and%20International%20Assistance.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Jonathan Thomas & Tim Worrall, 1988. "Self-Enforcing Wage Contracts," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 55(4), pages 541-554.
    2. Danthine, Jean-Pierre & Hunt, Jennifer, 1994. "Wage Bargaining Structure, Employment and Economic Integration," Economic Journal, Royal Economic Society, vol. 104(424), pages 528-541, May.
    3. Jacques H. Dreze, 2000. "Economic and Social Security in the Twenty‐first Century, with Attention to Europe," Scandinavian Journal of Economics, Wiley Blackwell, vol. 102(3), pages 327-348, September.
    4. Alesina, Alberto & Perotti, Roberto & Spolaore, Enrico, 1995. "Togetheror separately? Issues on the costs and benefits of political and fiscal unions," European Economic Review, Elsevier, vol. 39(3-4), pages 751-758, April.
    5. Forni, Mario & Reichlin, Lucrezia, 1999. "Risk and potential insurance in Europe," European Economic Review, Elsevier, vol. 43(7), pages 1237-1256, June.
    6. repec:bla:scandj:v:102:y:2000:i:3:p:327-48 is not listed on IDEAS
    7. Alesina, Alberto & Perotti, Roberto & Spolaore, Enrico, 1995. "Togetheror separately? Issues on the costs and benefits of political and fiscal unions," European Economic Review, Elsevier, vol. 39(3-4), pages 751-758, April.
    8. French, Kenneth R & Poterba, James M, 1991. "Investor Diversification and International Equity Markets," American Economic Review, American Economic Association, vol. 81(2), pages 222-226, May.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Masashige Hamano & Pierre M. Picard, 2017. "Extensive and intensive margins and exchange rate regimes," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 50(3), pages 804-837, August.
    2. Étienne Farvaque & Florence Huart, 2016. "Drowned by Numbers? Designing an EU-wide Unemployment Insurance," CIRANO Working Papers 2016s-33, CIRANO.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Picard, Pierre M. & Worrall, Tim, 2020. "Currency areas and voluntary transfers," Journal of International Economics, Elsevier, vol. 127(C).
    2. PICARD, Pierre M. & WORRALL, Tim, 2007. "Currency areas and international assistance," LIDAM Discussion Papers CORE 2007052, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    3. Rigmar Osterkamp & Markus Eller, 2003. "Functional Decentralisation of Government Activity," ifo DICE Report, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 1(03), pages 36-42, February.
    4. Rajashri Chakrabarti, 2005. "Gains from a Redrawing of Political Boundaries: Evidence from State Reorganization in India," Others 0512002, University Library of Munich, Germany.
    5. Pompeo Della Posta, & Roberto Tamborini, 2021. "The existential trilemma of EMU in a model of fiscal target zone," DEM Working Papers 2021/10, Department of Economics and Management.
    6. Catherine E. De Vries, 2017. "Benchmarking Brexit: How the British Decision to Leave Shapes EU Public Opinion," Journal of Common Market Studies, Wiley Blackwell, vol. 55, pages 38-53, September.
    7. Branko Milanović, 2001. "Nations, Conglomerates and Empires: Trade-off Between Income and Sovereignty," Palgrave Macmillan Books, in: Dominick Salvatore & Marjan Svetličič & Jože P. Damijan (ed.), Small Countries in a Global Economy, chapter 1, pages 25-69, Palgrave Macmillan.
    8. Sebnem Kalemli-Ozcan & Bent E. Sørensen & Oved Yosha, 2003. "Risk Sharing and Industrial Specialization: Regional and International Evidence," American Economic Review, American Economic Association, vol. 93(3), pages 903-918, June.
    9. Bordignon, Massimo & Brusco, Sandro, 2001. "Optimal secession rules," European Economic Review, Elsevier, vol. 45(10), pages 1811-1834, December.
    10. Jorge Blázquez, 1998. "Estructura federal, bienestar e inestabilidad política: un modelo de gasto público con externalidades internacionales," Investigaciones Economicas, Fundación SEPI, vol. 22(1), pages 119-149, January.
    11. Vlachos, Jonas, 2004. "Who wants political integration?: Evidence from the Swedish EU-membership referendum," Journal of Public Economics, Elsevier, vol. 88(7-8), pages 1589-1604, July.
    12. Alesina, Alberto & Spolaore, Enrico, 2005. "War, peace, and the size of countries," Journal of Public Economics, Elsevier, vol. 89(7), pages 1333-1354, July.
    13. Casson, Mark & Dark, Ken & Gulamhussen, Mohamed Azzim, 2009. "Extending internalisation theory: From the multinational enterprise to the knowledge-based empire," International Business Review, Elsevier, vol. 18(3), pages 236-256, June.
    14. Lesley-Ann Daniels & Alexander Kuo, 2021. "Brexit and Territorial Preferences: Evidence from Scotland and Northern Ireland," Publius: The Journal of Federalism, CSF Associates Inc., vol. 51(2), pages 186-211.
    15. Luciano Andreozzi & Roberto Tamborini, 2017. "We need more Europe in the Monetary Union. Which Europe? Hints from policy games," EconPol Working Paper 5, ifo Institute - Leibniz Institute for Economic Research at the University of Munich.
    16. Rigmar Osterkamp & Markus Eller, 2003. "Functional Decentralisation of Government Activity," ifo DICE Report, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 1(3), pages 36-42, 02.
    17. Niklas Hanes & Magnus Wikström & Erik Wångmar, 2012. "Municipal Preferences for State-imposed Amalgamations: An Empirical Study Based on the Swedish Municipal Reform of 1952," Urban Studies, Urban Studies Journal Limited, vol. 49(12), pages 2733-2750, September.
    18. Csillag, István, 2001. "Költségvetési összhangzattan. Diktatúrából a demokráciába? [Budgetary harmony. From dictatorship to democracy?]," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(10), pages 824-843.
    19. Alesina, Alberto & Spolaore, Enrico, 2006. "Conflict, defense spending, and the number of nations," European Economic Review, Elsevier, vol. 50(1), pages 91-120, January.
    20. Brink, Anna, 2001. "The Break-Up of Municipalities –Voting Behavior in Local Referenda," Working Papers in Economics 58, University of Gothenburg, Department of Economics, revised 05 Sep 2003.

    More about this item

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F15 - International Economics - - Trade - - - Economic Integration
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:luc:wpaper:09-01. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Marina Legrand (email available below). General contact details of provider: https://edirc.repec.org/data/crcrplu.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.
    pFad - Phonifier reborn

    Pfad - The Proxy pFad of © 2024 Garber Painting. All rights reserved.

    Note: This service is not intended for secure transactions such as banking, social media, email, or purchasing. Use at your own risk. We assume no liability whatsoever for broken pages.


    Alternative Proxies:

    Alternative Proxy

    pFad Proxy

    pFad v3 Proxy

    pFad v4 Proxy