Monetary Union, Trade Integration, and Business Cycles in 19th Europe

Marc Flandreau (1) , Mathilde Maurel (2)

1 OFCE - Observatoire français des conjonctures économiques (Sciences Po)
2 ROSES - Réformes et Ouverture des Systèmes Economiques post-Socialistes

This paper studies the impact of monetary arrangements on trade integration and business cycle correlation in late 19th century Europe. We estimate a gravity model and show that tighter monetary integration was associated with substantially higher trade, as in recent studies using contemporary data. For instance, the Austro-Hungarian monetary union improved trade between member states by a factor of 3. To explain this, we build and estimate a simple model where greater monetary integration weakens the current account constraint by fostering business cycle co-movements.

Mots clés: optimum currency areas; endogeneity; trade; business cycles; monetary union

Domaines: Economies et finances

Marc Flandreau, Mathilde Maurel. Monetary Union, Trade Integration, and Business Cycles in 19th Europe. Open Economies Review, 2005, 16 (2), pp.135-152. ⟨10.1007/s11079-005-5872-4⟩. ⟨halshs-00308756⟩