EconPapers    
Economics at your fingertips  
 

Monetary Union with Voluntary Participation

William Fuchs and Francesco Lippi

No 4122, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: A monetary union is modelled as a technology that makes surprise devaluations impossible but requires voluntarily participating countries to follow the same monetary policy. It is shown that for low discount factors and sufficiently correlated shocks welfare in the union is higher than that achievable when countries coordinate while retaining their own independent policy. Optimal policy, when participation in the union is voluntary, is characterized and shown to respond to agents’ incentives to leave by tilting current and future policy in their favour. This contrasts with the static nature of optimal policy when participation is exogenously assumed. This finding implies that policy in the union will not be exclusively guided by area-wide developments but will occasionally take account of member countries’ national developments. Finally, we show that there might exist states of the world in which the union breaks apart, as occurred in several historical episodes. The Paper thus provides a first formal analysis of the forces behind the formation, sustainability and disruption of a monetary union.

Keywords: cross-country spillovers; limited commitment; monetary union (search for similar items in EconPapers)
JEL-codes: C70 E50 F33 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-mac and nep-mon
Date: 2003-11
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1) Track citations by RSS feed

Downloads: (external link)
http://www.cepr.org/active/publications/discussion_papers/dp.php?dpno=4122 (application/pdf)
CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org

Related works:
Working Paper: Monetary Union with Voluntary Participation (2005) Downloads
Working Paper: Monetary union with voluntary participation (2004) Downloads
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cpr:ceprdp:4122

Ordering information: This working paper can be ordered from
http://www.cepr.org/ ... ers/dp.php?dpno=4122

Access Statistics for this paper

More papers in CEPR Discussion Papers from C.E.P.R. Discussion Papers Centre for Economic Policy Research, 33 Great Sutton Street, London EC1V 0DX.
Bibliographic data for series maintained by ().

 
Page updated 2019-07-02
Handle: RePEc:cpr:ceprdp:4122