06902oam 22015374 450 991078648140332120230801225322.01-4755-1226-01-4755-1225-2(CKB)2670000000278842(EBL)1607014(SSID)ssj0000949355(PQKBManifestationID)11596461(PQKBTitleCode)TC0000949355(PQKBWorkID)10998149(PQKB)10242565(MiAaPQ)EBC1607014(Au-PeEL)EBL1607014(CaPaEBR)ebr10627063(OCoLC)870245071(IMF)WPIEE2012240(IMF)WPIEA2012240(EXLCZ)99267000000027884220020129d2012 uf 0engur|n|---|||||txtccrDeciding to Enter a Monetary Union : TheRole of Trade and Financial Linkages /Ruy Lama, Pau RabanalWashington, D.C. :International Monetary Fund,2012.1 online resource (53 p.)IMF Working PapersDescription based upon print version of record.1-4755-1243-0 1-4755-1143-4 Includes bibliographical references.Cover; Contents; 1. Introduction; 2. The Model; 2.1 Households, International Assets Markets, and Staggered Wage Setting; 2.2 Firms; 2.3 Closing the Model; 3. Bayesian Estimation; 3.1 Data; 3.2 Model Dynamics and Data Transformations; 3.3 Estimation: Priors and Posteriors; Tables; Table 1 Calibrated Parameters; Table 2 Prior Distributions; Table 3 Posterior Distributions, structural parameters; Table 4 Posterior Distributions, shocks parameters; 4. Policy Analysis: Welfare Gains of Entering a Monetary Union; Table 5 Second Moments; Table 6 Steady State Effects and Welfare GainsTable 7 Business Cycle Effects and Welfare Gains5. Sensitivity Analysis; 6. Conclusions; Technical Appendix; References; Figures; Figure 1 Monetary Policy Rates in United Kingdom and the Euro Area: 1999-2011; Figure 2 Trade with Euro Area in France, Germany, Italy, Spain and the United Kingdom; Figure 3 Risk Premium in France, Italy, Spain the United Kingdom; Figure 4 Impulse Response Functions to 25 basis points increase in UIP Shock; Figure 5 Sensitivity Analysis of WelfareThis paper evaluates the role of trade and financial linkages in the decision to enter a monetary union. We estimate a two-country DSGE model for the U.K. economy and the euro area, and use the model to compute the welfare trade-offs from joining the euro. We evaluate two alternative scenarios. In the first one, we consider a reduction of trade costs that occurs after the adoption of a common currency. In the second, we introduce interest rate spread shocks of the same magnitude as the ones observed during the recent debt crisis in Europe. The reduction of trade costs generates a net welfare gain of 0.9 percent of life-time consumption, while the increased interest rate spread volatility generates a net welfare cost of 2.9 percentage points. The welfare calculation suggests two ways to preserve the welfare gains in a monetary union: ensuring fiscal and financial stability that reduces macroeconomic country risk, and increasing wage flexibility such that the economy adjusts to external shocks faster.IMF Working Papers; Working Paper ;No. 2012/240Monetary unionsInternational tradeBanks and BankingimfExports and ImportsimfFinancial Risk ManagementimfForeign ExchangeimfMacroeconomicsimfMoney and Monetary PolicyimfMonetary PolicyimfOpen Economy MacroeconomicsimfInternational Policy Coordination and TransmissionimfInternational Business CyclesimfFinancial Aspects of Economic IntegrationimfMacroeconomics: ConsumptionimfSavingimfWealthimfInterest Rates: Determination, Term Structure, and EffectsimfFinancial CrisesimfMonetary SystemsimfStandardsimfRegimesimfGovernment and the Monetary SystemimfPayment SystemsimfInternational economicsimfFinanceimfCurrencyimfForeign exchangeimfEconomic & financial crises & disastersimfMonetary economicsimfMonetary unionsimfConsumptionimfInterest rate parityimfReal exchange ratesimfFinancial crisesimfEconomic integrationimfNational accountsimfFinancial servicesimfCurrenciesimfMoneyimfEconomicsimfInterest ratesimfUnited KingdomimfMonetary unions.International trade.Banks and BankingExports and ImportsFinancial Risk ManagementForeign ExchangeMacroeconomicsMoney and Monetary PolicyMonetary PolicyOpen Economy MacroeconomicsInternational Policy Coordination and TransmissionInternational Business CyclesFinancial Aspects of Economic IntegrationMacroeconomics: ConsumptionSavingWealthInterest Rates: Determination, Term Structure, and EffectsFinancial CrisesMonetary SystemsStandardsRegimesGovernment and the Monetary SystemPayment SystemsInternational economicsFinanceCurrencyForeign exchangeEconomic & financial crises & disastersMonetary economicsMonetary unionsConsumptionInterest rate parityReal exchange ratesFinancial crisesEconomic integrationNational accountsFinancial servicesCurrenciesMoneyEconomicsInterest ratesLama Ruy1472724Rabanal Pau1509574DcWaIMFBOOK9910786481403321Deciding to Enter a Monetary Union3858201UNINA