Labor Immobility And The Transmission Mechanism Of Monetary Policy In A Monetary Union

It is believed that a shock, common to a set of countries with identical fundamentals, has identical outcomes across countries. The authors show that in general, when specialization in production is such that a common shock creates a missing role for labor mobility across countries, the terms of trade of any country reacts to the shock. This is the case even if state contingent assets can be traded across countries. The transmission mechanism of a monetary shock in a monetary union has in this case an additional channel, the terms of trade. They also show that the country outcomes are significantly different, when compared with the effect of the shock on the union's aggregate.

Provided by: Banco de Portugal Topic: CXO Date Added: Oct 2010 Format: PDF

Find By Topic