This presentation is part of: F30-2 Microeconomic Aspects of Monetary Integration

Microeconomic Foundations in Monetary Integration Modeling

Pawel Mlodkowski, Ph.D., Department of Economics, Wyzsza Szkola Biznesu - National Louis University, Zielona Street 27, Nowy Sacz, 33-300, Poland

There has been a growing interest in monetary union modeling since 1990s. One can find many publications that offer formal models of optimum currency areas (Bayoumi 1994, Ricci 1997, Ca’Zorzi, De Santis 2005). Authors of formal monetary union models or optimal currency area models when analyzing effects of monetary integration start with defining economic agents behavior. This covers three areas from microeconomics: consumer choice about consumption/savings, firm behavior and market clearing mechanism.

It seems promising to conduct a meta-analysis on microeconomic foundations found in the models of monetary integration. In many cases assumptions about initial setting (before monetary integration) and final economic environment (monetary union membership) allow for recognizing the whole process as moving from an open to a closed economy case. The paper aims at answering the following question: are assumptions about change in agents’ and markets’ behavior valid when compared with EMU experience (1998-2006)? Comparison of the assumed and the actual behavior would facilitate further work on monetary integration modeling.
The methodology of the proposed paper is composed of a meta-analysis of monetary integration models’ assumptions with grouping them into three sections: consumer, firm, markets. Then subsections will cover consumer behavior in consumption and saving, firm behavior in setting wages, production and investment, and market structures.
Empirical study is going to test hypotheses about consumption of domestic and foreign goods, savings, production, intra-union and foreign investment. Data sources for assumed changes in consumer&firm behavior will be retrieved from the Balance of Payments Statistics database (International Monetary Fund) and “National Accounts” section of the International Financial Statistics (International Monetary Fund). The study will focus on the largest EMU economies (Germany, France, Netherlands, Italy).
JEL Classification: E42, F33, D12, D21
Keywords: monetary integration, economic modeling, microfoundations.


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