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Journal of Economic Integration 2007 December;22(4) :748-779.
DOI: https://doi.org/10.11130/jei.2007.22.4.748
Monetary Union, Real Exchange Rate, and Welfare

Hiroya Akiba 

Waseda University
Copyright ©2007 Journal of Economic Integration
ABSTRACT

This paper considers the effects of formation or new accession to a monetary union (MU) on itself ("ins") and the outsiders ("outs") as well. Since a MU inherently means a "large" entity, we construct a large country model to examine those effects in the context of economic growth. The closed-form solution of the terms of trade enables us to derive the plausible conclusions: (a) the terms of trade of the MU improves, (b) the real income of "outs" falls, implying a real transfer to the MU, and (c) the real exchange rate of the MU currency appreciates.

JEL classification: F33, F36, F43

Keywords: Exchange Rate | EU | Growth | Factor Accumulation
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