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Theory and practice of contagion in monetary unions. Domino effects in EU Mediterranean countries: The case of Greece, Italy and Spain

Paolo Canofari (), Giovanni Di Bartolomeo () and Giovanni Piersanti ()

wp.comunite from Department of Communication, University of Teramo

Abstract: This paper analyzes strategic interactions and contagion effects in countries joined to a monetary union. Using game theory and a cost-benefit analysis, the paper determines the set of equilibrium solutions under which country-specific shocks are transmitted to other member countries giving rise to contagion. Numerical simulations, obtained by a simple calibration of the model on some key Mediterranean countries of the Euro Zone, show the probabilities of contagion from Greece to Spain and Italy.

Keywords: Shadow exchange rate; currency crisis; monetary unions; contagion; Nash equilibria (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cmp, nep-eec, nep-mon and nep-opm
Date: 2013-01
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