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Open Economies Review

, Volume 24, Issue 5, pp 789–818 | Cite as

EMU, EU, Market Integration and Consumption Smoothing

  • Atanas Christev
  • Jacques Melitz
Research Article
  • 288 Downloads

Abstract

By taking a new approach to the study of the impact of EMU on consumption smoothing, centering on consumption volatility and therefore on smoothing more directly, we find that even though EMU tends to smooth consumption, it is not through cross-country property and claims. Rather it comes through the promotion of the tradability of goods, capital in particular: specifically, the encouragement of price competition, contestable home markets, ability to borrow and buy insurance at home, and the harmonization of regulations. Some of the consumption smoothing may also depend on EU membership rather than EMU as such but EMU adds to it. As a fundamental part of the analysis, the paper uses a new index of currency union which focuses on the ratio of trade with other countries sharing the same currency relative to total foreign trade.

Keywords

Capital market integration Consumption smoothing Currency union European Monetary Union European Union 

JEL Classifications

F36 F41 E00 G10 

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Copyright information

© Springer Science+Business Media New York 2013

Authors and Affiliations

  1. 1.Department of EconomicsHeriot-Watt UniversityEdinburghUK
  2. 2.IZABonnGermany
  3. 3.CEPRLondonUK
  4. 4.CEPIIParisFrance
  5. 5.ENSAEMalakoffFrance

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