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Visiting Scholars Seminar: New Research on Europe

Competition, Core-Periphery and Currency Unions


February 27, 2019
12:15pm - 1:45pm
Hoffmann Room, Adolphus Busch Hall Directions
February 27, 2019
12:15pm - 1:45pm
Hoffmann Room, Adolphus Busch Hall Directions

Does competition explain core-periphery dynamics in currency unions? The distances between core and periphery countries are often estimated from binary time-invariant classifications relying mostly upon demand, not supply disturbances. We derive new dynamic continuous (not binary) theory-based measures by explicitly modeling supply shocks as over-identifying restrictions. Using the Phillips-Sul method (Econometrica 2007), we identify hard-core, soft-core and periphery groups and study how these change over time. We find the core-periphery divide in Europe weakens after 1992. Our estimates suggest that competition (flexible product market regulations or imports) and euro adoption significantly decrease the likelihood of countries being classified as peripheral.

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