Quantifying the Benefits of Labor Mobility in a Currency Union

Christopher L. House, Christian Proebsting and Linda L. Tesar
Additional contact information
Christopher L. House: University of Michigan & NBER
Linda L. Tesar: University of Michigan & NBER

No 671, Working Papers from Research Seminar in International Economics, University of Michigan

Abstract: Unemployment differentials are bigger in Europe than in the United States. Migration responds to unemployment differentials, though the response is smaller in Europe. Mundell (1961) argued that factor mobility is a precondition for a successful currency union. We use a multi-country DSGE model with cross-border migration and search frictions to quantify the benefits of increased labor mobility in Europe and compare this outcome to a case of fully flexible exchange rates. Labor mobility and flexible exchange rates both work to reduce unemployment and per capita GDP differentials across countries provided that monetary policy is sufficiently responsive to national output.

Keywords: Labor mobility; currency union; unemployment (search for similar items in EconPapers)
JEL-codes: E24 E42 E52 E58 F15 F16 F22 F33 F45 (search for similar items in EconPapers)
Pages: 60 pages
Date: 2018-12
New Economics Papers: this item is included in nep-dge, nep-int, nep-mac, nep-opm and nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (16)

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Related works:
Working Paper: Quantifying the Benefits of Labor Mobility in a Currency Union (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:mie:wpaper:671

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