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The Announcement of Unconventional Monetary Policy and the Exit Risk in the European Monetary Union

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  • Paolo Canofari
  • Alessandra Marcelletti
  • Giovanni Piersanti

Abstract

The introduction of unconventional monetary policy, pushing down the euro value, aims at strengthening the euro area, by increasing its competitiveness and boosting its economic growth. The goal of our paper is to offer a theoretical validation of these facts using a monetary union model in which a representative country and a common central bank strategically interact. The country can choose to stay in or opt out from the monetary union after a demand shock, while the central bank controls the exchange rate to preserve the stability of the union. Our main result is that the announcement of common exchange rate depreciation reduces the probability of a monetary union breakup.

Suggested Citation

  • Paolo Canofari & Alessandra Marcelletti & Giovanni Piersanti, 2018. "The Announcement of Unconventional Monetary Policy and the Exit Risk in the European Monetary Union," International Journal of Economics and Finance, Canadian Center of Science and Education, vol. 10(4), pages 95-100, April.
    • Handle: RePEc:ibn:ijefaa:v:10:y:2018:i:4:p:95-100
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    References listed on IDEAS

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    7. Piersanti, Giovanni, 2012. "The Macroeconomic Theory of Exchange Rate Crises," OUP Catalogue, Oxford University Press, number 9780199653126.
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    More about this item

    Keywords

    monetary unions; Nash equilibria; exchange rate; central bank;
    All these keywords.

    JEL classification:

    • R00 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General - - - General
    • Z0 - Other Special Topics - - General

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