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.