JOINING EUROPEAN MONETARY UNION: A REAL OPTIONS PERSPECTIVE

Frank Strobel

Scottish Journal of Political Economy, 2007, vol. 54, issue 1, 105-115

Abstract: We examine the real option implicit in countries' decisions on whether to join a monetary union when future benefits of this move are uncertain. Our theoretical model is calibrated for the current Euro‐12 area and EU‐15 outs, proxying policymakers' inflation preferences with unemployment rates, debt‐to‐GDP and potential‐to‐actual‐GDP ratios. The Euro‐12 area is generally ready or close to wanting to expand, whereas the EU‐15 outs are unready to make that move at present and have widely varying probabilities of wanting to do so in the future, depending on the measure used.

Date: 2007
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https://doi.org/10.1111/j.1467-9485.2007.00406.x

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