CURRENCY UNION WITH OR WITHOUT BANKING UNION

Vincent Bignon, Régis Breton () and Mariana Rojas-Breu

International Economic Review, 2019, vol. 60, issue 2, 965-1003

Abstract: We build a symmetric two‐country monetary model with credit to study the interplay between currency integration and credit markets integration. The currency arrangement affects credit availability through default incentives. We capture credit markets integration by the extra cost incurred to obtain credit for cross‐border transactions and, with the euro area context in mind, label as banking union a situation where this cost is low. For high levels of the cross‐border credit cost, currency integration may magnify default incentives, leading to more credit rationing and lower welfare. The integration of credit markets restores the optimality of the currency union.

Date: 2019
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https://doi.org/10.1111/iere.12373

Related works:
Working Paper: Currency union with or without banking union (2019)
Working Paper: Currency union with or without banking union (2018)
Working Paper: Currency union with or without banking union (2018)
Working Paper: Currency union with or without banking union (2018)
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