Monetary Policy Conduct and the Prospects of a Currency Union

N. Bednar and Ph. Monfort
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N. Bednar: Facultés universitaires Saint-Louis, Brussels
Ph. Monfort: UNIVERSITE CATHOLIQUE DE LOUVAIN, Institut de Recherches Economiques et Sociales (IRES)

No 1998013, LIDAM Discussion Papers IRES from Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES)

Abstract: This paper discusses the issue of a currency union between partners differing in the optimal conduct of their national monetary policy. The underlying cause of asymmetry is the extent of the nominal rigidities featured by the economies. We examine the distribution of the gains obtained from this form of coordination and show that there may exist a critical level of asymmetry above which the union proves non-feasable because, for one of the partner, coordination is no longer welfare improving. In this perspective, the extent of asymmetry between countries unambiguously reduces the likelihood of a productive coordination of national monetary policies.

Pages: 25
Date: 1998-05-01
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Persistent link: https://EconPapers.repec.org/RePEc:ctl:louvir:1998013

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