Monetary Union, Banks and Financial Integration

Régis Breton (), Mariana Rojas Breu () and Vincent Bignon
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Mariana Rojas Breu: LEDa - Laboratoire d'Economie de Dauphine - Université Paris Dauphine-PSL - PSL - Université Paris Sciences et Lettres
Authors registered in the RePEc Author Service: Mariana Rojas-Breu

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Abstract: This paper analyzes a two-country model of money and banks to examine the conditions under which the creation of a monetary union between two countries is optimal. Is is shown that if agents resort to banks to adjust their monetary holdings through borrowing and if nobody can force them to repay their debts, it may be optimal for both countries to set up two different currencies, along with strictly positive conversion costs. A necessary condition for this is that credit market integration is limited. This arises even though both countries are perfectly identical.

Keywords: Monetary union; credit; default; limited commitment (search for similar items in EconPapers)
Date: 2013-06
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Published in 62nd annual meeting of the AFSE, Jun 2013, Marseille, France. pp.21

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Related works:
Working Paper: Monetary Union with A Single Currency and Imperfect Credit Market Integration (2015)
Working Paper: Currency Union with and without Banking Union (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-01685888

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