Nash Bargaining, Money Creation, and Currency Union

Stéphane Auray, Aurélien Eyquem, Gerard Hamiache and Jean-Christophe Poutineau ()
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Gerard Hamiache: GREMARS-EQUIPPE, Universite de Lille III, Domaine universitaire du Pont de Bois

Annals of Economics and Finance, 2008, vol. 9, issue 2, 253-292

Abstract: This paper is an attempt to combine global macroeconomic objectives with an explicit analysis of resource allocation efficiency. It determines how money creation must be shared between Monetary Union members, given national particularities in the monetary transmission mechanisms. In a two-country "New Open Macroeconomics" model, we outline the optimality of an unequal treatment of nations. To this end, the original Nash bargaining concept is modified to allow a differentiated treatment of countries. By favoring the more flexible country and relying on international money flows to provide liquidity to the more rigid nation, all Union members register efficiency gains which compensate an unfavorable intertemporal inflation activity arbitrage in the Union Central Bank objective.

Keywords: Monetary union; Nash bargaining; New open macroeconomics (search for similar items in EconPapers)
JEL-codes: C72 E58 F33 F41 (search for similar items in EconPapers)
Date: 2008
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Working Paper: Nash bargaining, money creation, and currency union (2008)
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Persistent link: https://EconPapers.repec.org/RePEc:cuf:journl:y:2008:v:9:i:2:p:253-292

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