Deciding to Enter a Monetary Union : The Role of Trade and Financial Linkages

@inproceedings{Lama2012DecidingTE,
  title={Deciding to Enter a Monetary Union : The Role of Trade and Financial Linkages},
  author={Ruy Lama and Pau Rabanal},
  year={2012}
}
This 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… CONTINUE READING