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When a Monetary Union Fails: A Parable

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  • Guillaume Cheikbossian

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Abstract

The political imperative is an important driving force behind the dissolution of monetary unions. But economic factors are also likely to play an important role. Using a two-country model of government finance in a common currency area, we suggest that when countries are very heterogeneous in terms of financing requirements or in terms of tolerance for inflation, one of them will benefit from achieving monetary independence. The results are contrasted to the breakup of the Austro-Hungarian crown area in the 1920s and especially to that of the ruble area in the 1990s. Copyright Kluwer Academic Publishers 2001

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File URL: http://hdl.handle.net/10.1023/A:1008384413848
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Bibliographic Info

Article provided by Springer in its journal Open Economies Review.

Volume (Year): 12 (2001)
Issue (Month): 2 (April)
Pages: 181-195

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Handle: RePEc:kap:openec:v:12:y:2001:i:2:p:181-195

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Web page: http://www.springerlink.com/link.asp?id=100323

Related research

Keywords: monetary union; seignbrage; disintegration; Soviet Republic; Astro-Hungarian crown;

References

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  1. Alessandra Casella and Jonathan Feinstein., 1988. "Management of a Common Currency," Economics Working Papers 8891, University of California at Berkeley.
  2. Andrabi, Tahir, 1997. "Seigniorage, Taxation, and Weak Government," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 29(1), pages 106-26, February.
  3. Michael G. Spencer & Peter M. Garber, 1992. "The Dissolution of the Austro-Hungarian Empire," IMF Working Papers 92/66, International Monetary Fund.
  4. Hamada, Koichi, 1976. "A Strategic Analysis of Monetary Interdependence," Journal of Political Economy, University of Chicago Press, vol. 84(4), pages 677-700, August.
  5. repec:imf:imfpdp:9415 is not listed on IDEAS
  6. Casella, Alessandra, 1990. "Participation in a Currency Union," CEPR Discussion Papers 395, C.E.P.R. Discussion Papers.
  7. Hernán Cortés Douglas & Richard K. Abrams, 1993. "Introduction of a New National Currency," IMF Working Papers 93/49, International Monetary Fund.
  8. Rudiger Dornbusch, 1992. "Monetary problems of post-communism: Lessons from the end of the Austro-Hungarian empire," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 128(3), pages 391-424, September.
  9. Aizenman, Joshua, 1992. "Competitive Externalities and the Optimal Seigniorage," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 24(1), pages 61-71, February.
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Cited by:
  1. Kobayashi, Teruyoshi, 2005. "A model of monetary unification under asymmetric information," International Review of Economics & Finance, Elsevier, vol. 14(1), pages 1-15.
  2. Durevall, Dick, 2011. "East African Community: Pre-conditions for an Effective Monetary Union," Working Papers in Economics 520, University of Gothenburg, Department of Economics.

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