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To be or not to be in monetary union: A synthesis

Laurent Clerc (), Harris Dellas () and Olivier Loisel

Working papers from Banque de France

Abstract: Monetary union can benefit countries suffering from policy credibility problems if it eliminates the inflation bias and also allows for more efficient management of certain shocks. But it also carries costs as some stabilization may be feasible even in the absence of credibility, and this may be more than what an individual country can hope for in a monetary union. In this paper, we combine the stabilization and credibility branches of the currency union literature and construct a simple welfare criterion that can be used to evaluate alternative monetary arrangements. We produce examples where monetary union may be welfare improving even for low-modest levels of inflation bias (2-3%) as long as business cycles are not too a-synchronized across countries.

Keywords: Currency union; credibility; stabilization; inflation bias. (search for similar items in EconPapers)
JEL-codes: E4 E5 F4 (search for similar items in EconPapers)
Pages: 37 pages
Date: 2010
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
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Journal Article: To be or not to be in monetary union: A synthesis (2011) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:bfr:banfra:308

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