Scandinavian Working Papers in Economics

Research Papers in Economics,
Stockholm University, Department of Economics

No 2000:10: What We Cannot Learn from the Irish Experience: A fundamental Asymmetry of Asymmetric Shocks

Fredrik Andersson () and Rikard Forslid
Additional contact information
Fredrik Andersson: Department of Economics, Lund University, Postal: Department of Economics, Lund University, P.O. Box 7082, S-220 07 Lund, Sweden
Rikard Forslid: Department of Economics, Lund University, Postal: Department of Economics, Lund University, P.O. Box 7082, S-220 07 Lund, Sweden

Abstract: A simple N-country specific-factor model with imperfectly mobile labour is developed. It is shown that effects of country-specific productivity shocks hitting a small country are fundamentally asymmetric. A positive shock will be accomodated by a moderate wage increase and sizable in-migration, whereas a negative shock will be accomodated 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 economics fluctuations are also discussed.

Keywords: migration; assymmetric shocks

JEL-codes: E24; F22

14 pages, August 11, 2000

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