Mundell Revisited: A simple approach to the Costs and Benefits of a Single Currency Area

Stephen Ching and Michael Devereux
Additional contact information
Stephen Ching: City University of Hong Kong

No 92000, Working Papers from Hong Kong Institute for Monetary Research

Abstract: This paper develops an analytical model to evaluate the costs and benefits of a single currency area within a unified framework, inspired by the separate arguments of Mundell (1961) and (1973). The more familiar argument is that, in the presence of country-specific shocks, a single currency area imposes a welfare cost associated with the lack of exchange rate adjustment. But Mundell (1973) argues that a single currency area offers risk-sharing benefits in the face of country-specific shocks and restricted ability for capital markets to facilitate consumption insurance. In our model, a single currency area, as compared with a system of national currencies and floating exchange rates, brings both welfare costs associated with the absence of exchange rate adjustment and welfare benefits associated with risksharing. The model provides a utility-based comparison of costs versus benefits. While theoretically, either monetary regime may dominate, quantitatively, the net welfare benefits of a single currency area are likely to be negative.

JEL-codes: F33 F41 (search for similar items in EconPapers)
Pages: 14 pages
Date: 2000-11
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

Downloads: (external link)
http://www.hkimr.org/uploads/publication/326/ub_full_0_2_65_wp9.pdf (application/pdf)
Our link check indicates that this URL is bad, the error code is: 404 Not Found (http://www.hkimr.org/uploads/publication/326/ub_full_0_2_65_wp9.pdf [301 Moved Permanently]--> http://www.aof.org.hk/research/HKIMR/uploads/publication/326/ub_full_0_2_65_wp9.pdf [301 Moved Permanently]--> https://www.aof.org.hk/research/HKIMR/uploads/publication/326/ub_full_0_2_65_wp9.pdf)

Related works:
Journal Article: Mundell Revisited: a Simple Approach to the Costs and Benefits of a Single Currency Area (2003)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:hkm:wpaper:092000

Access Statistics for this paper

More papers in Working Papers from Hong Kong Institute for Monetary Research Contact information at EDIRC.
Bibliographic data for series maintained by HKIMR ().