Credibility and Seigniorage in a Common Currency Area

Laura Bottazzi () and Paolo Manasse ()

Journal of Money, Credit and Banking, 2002, vol. 34, issue 4, pages 1034-46

Abstract: In the paper we show that common currency areas tend to amplify the inefficiencies associated with lack of credibility of monetary policy. Lack of commitment in redistribution of seigniorage leads to excessive inflation and suboptimal taxation in the Monetary Union. Lack of commitment to inflation creates multiple inefficient equilibria that do not exist in a regime of national monetary independence.

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Journal of Money, Credit and Banking is edited by Pok-Sang Lam, Deborah Lucas, Masao Ogaki and Kenneth D. West

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