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Coalition formation in international monetary policy games

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  • Kohler, Marion

Abstract

It is well known from the analysis of monetary policy co-ordination of two countries that co-ordination often Pareto-dominates the outcome of the non-co-operative game. Hence both countries will have an incentive to form a union when it is certain that the other country will also join. However, in an n-country model, free-riding incentives restrict the size of a stable coalition to less then n countries. Since the coalition members are bound by the union's discipline, an outsider can successfully export inflation without fearing that the insiders will try to do the same. The formation of a large currency bloc is not sustainable since it would impose too much discipline on all participants. However, the co-existence of several smaller currency blocs may be a second-best solution to the free-riding problem of monetary policy co-ordination.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of International Economics.

Volume (Year): 56 (2002)
Issue (Month): 2 (March)
Pages: 371-385

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Handle: RePEc:eee:inecon:v:56:y:2002:i:2:p:371-385

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Web page: http://www.elsevier.com/locate/inca/505552

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References

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  1. Canzoneri, Matthew B., 1982. "Exchange intervention policy in a multiple country world," Journal of International Economics, Elsevier, vol. 13(3-4), pages 267-289, November.
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  9. Marion Kohler, 1998. "Optimal currency areas and customs unions: are they connected?," Bank of England working papers 89, Bank of England.
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Citations

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Cited by:
  1. repec:eid:wpaper:32513 is not listed on IDEAS
  2. Bilbiie, Florin O., 2011. "Designing domestic institutions for international monetary policy cooperation: A Utopia?," Journal of International Money and Finance, Elsevier, vol. 30(3), pages 393-409, April.
  3. Eyckmans, Johan & Finus, Michael, 2009. "An Almost Ideal Sharing Scheme for Coalition Games with Externalities," Stirling Economics Discussion Papers 2009-10, University of Stirling, Division of Economics.
  4. Kohler, Marion, 2004. "Competing coalitions in international monetary policy games," HWWA Discussion Papers 258, Hamburg Institute of International Economics (HWWA).
  5. Eyckmans, Johan & Finus, Michael & Mallozzi, Lina, 2011. "A New Class of Welfare Maximizing Stable Sharing Rules for Partition Function Games with Externalities," Working Papers 2011/08, Hogeschool-Universiteit Brussel, Faculteit Economie en Management.
  6. Karp, Larry & Simon, Leo, 2013. "Participation games and international environmental agreements: A non-parametric model," Journal of Environmental Economics and Management, Elsevier, vol. 65(2), pages 326-344.
  7. Ludovic Renou, 2008. "Group formation and governance," Discussion Papers in Economics 08/15, Department of Economics, University of Leicester, revised Nov 2008.
  8. Giovanni Di Bartolomeo & Jacob Engwerda & Joseph Plasmans & Bas van Aarle, 2005. "Monetary Unions: The Policy Coordination Issue," Macroeconomics 0504023, EconWPA.

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