DP2531 What We Cannot Learn from the Irish Experience: A Fundamental Asymmetry of Asymmetric Shocks
|Author(s):||Fredrik Andersson, Rikard Forslid|
|Publication Date:||August 2000|
|Keyword(s):||Asymmetric Shocks, Migration|
|JEL(s):||E24, F16, F22|
|Programme Areas:||International Trade and Regional Economics|
|Link to this Page:||cepr.org/active/publications/discussion_papers/dp.php?dpno=2531|
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.