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Benefits from Mutual Restraint in a Multilateral Monetary Union

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  • Buigut, Steven
  • Valev, Neven T.

Abstract

Summary We show that monetary union can enhance price stability for its member countries even if none of them has a long history of stable prices and independent monetary policy, as is the case in a number of monetary union initiatives among developing countries. The positive effect obtains because the opportunistic objectives of one country's policy makers are kept in check at the union level by other members with disparate objectives. We calibrate the model to evaluate the proposed monetary union in the East African Community. The empirical results show that the mutual restraint on monetary policy is an important determinant of the expected benefit from an EAC monetary union.

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Bibliographic Info

Article provided by Elsevier in its journal World Development.

Volume (Year): 37 (2009)
Issue (Month): 3 (March)
Pages: 585-594

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Handle: RePEc:eee:wdevel:v:37:y:2009:i:3:p:585-594

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Web page: http://www.elsevier.com/locate/worlddev

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Keywords: credibility mutual restraint welfare monetary union East African Community;

References

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Cited by:
  1. Joao Loureiro & Manuel m.f. Martins & Ana paula Ribeiro, 2010. "Cape Verde: The Case For Euroisation," South African Journal of Economics, Economic Society of South Africa, vol. 78(3), pages 248-268, 09.

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