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Title: What We Cannot Learn from the Irish Experience: A Fundamental Asymmetry of Asymmetric Shocks

Author(s): Fredrik Andersson and Rikard Forslid

Publication Date: August 2000

Keyword(s): Asymmetric Shocks and Migration

Programme Area(s): International Trade and Regional Economics

Abstract: A simple N-country specific-factor type model with imperfectly mobile labour is developed. It is shown that the effects of country-specific productivity shocks hitting a small country are fundamentally asymmetric. A positive shock will be accommodated by a moderate wage increase and sizeable in-migration, whereas a negative shock will be accommodated by a significant decrease in wages and moderate out-migration. The effects of shocks in a monetary union are discussed, and it is argued that the results are consistent with the recent Irish experience. The welfare effects of small economic fluctuations are also discussed.

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Bibliographic Reference

Andersson, F and Forslid, R. 2000. 'What We Cannot Learn from the Irish Experience: A Fundamental Asymmetry of Asymmetric Shocks'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=2531