Monetary Union with A Single Currency and Imperfect Credit Market Integration

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

Working papers from Banque de France

Abstract: With the Euro Area context in mind, we show that currency arrangements impact on credit available through default incentives. To this end we build a symmetric two-country model with money and imperfect credit market integration. Differences in credit market integration are captured by variations in the cost for banks to grant credit for cross-border purchases. We show that for high enough levels of this cost, currency integration may magnify default incentives, leading to more stringent credit rationing and lower welfare than in a regime of two currencies. The integration of credit markets restores the optimality of the currency union.

Keywords: banks; currency union; monetary union; credit; default. (search for similar items in EconPapers)
JEL-codes: E42 E50 F3 G21 (search for similar items in EconPapers)
Pages: 75 pages
Date: 2015
New Economics Papers: this item is included in nep-eec, nep-mac, nep-mon and nep-opm
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Related works:
Working Paper: Currency Union with and without Banking Union (2013)
Working Paper: Monetary Union, Banks and Financial Integration (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:bfr:banfra:541

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