Monetary Integration, Uncertainty and the Role of Monetary Policy

Graham Voss

No 813, Working Paper from Economics Department, Queen's University

Abstract: This research considers the positive theory of monetary integration in a general equilibrium monetary model of the world economy. The analysis demonstrates that, in the face of uncertainty and incomplete asset markets, participation in a monetary union may be welfare improving since it facilitates state-dependent resource transfers between regional economies. Such resource transfers are used to optimally reduce the variance of consumption for a risk averse agents. This potential for improving welfare depends not only on the agents' risk aversion but on the interrelationship of the regional economies: contrary to Mundell (1961), economically diverse regions may be well suited to a common currency.

Pages: 36 pages
Date: 1991-05
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Citations: View citations in EconPapers (3)

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http://qed.econ.queensu.ca/working_papers/papers/qed_wp_813.pdf First version 1991 (application/pdf)

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Persistent link: https://EconPapers.repec.org/RePEc:qed:wpaper:813

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