Abstract
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.
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Flandreau, M., Maurel, M. Monetary Union, Trade Integration, and Business Cycles in 19th Century Europe. Open Econ Rev 16, 135–152 (2005). https://doi.org/10.1007/s11079-005-5872-4
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DOI: https://doi.org/10.1007/s11079-005-5872-4