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Credibility and Seigniorage in a Common Currency Area

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  • Bottazzi, Laura
  • Manasse, Paolo

Abstract

In the paper we show that common currency areas tend to amplify the inefficiencies associated with lack of credibility of monetary policy. Lack of commitment in redistribution of seigniorage leads to excessive inflation and suboptimal taxation in the Monetary Union. Lack of commitment to inflation creates multiple inefficient equilibria that do not exist in a regime of national monetary independence.

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Bibliographic Info

Article provided by Blackwell Publishing in its journal Journal of Money, Credit and Banking.

Volume (Year): 34 (2002)
Issue (Month): 4 (November)
Pages: 1034-46

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Handle: RePEc:mcb:jmoncb:v:34:y:2002:i:4:p:1034-46

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Web page: http://www.blackwellpublishing.com/journal.asp?ref=0022-2879

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  1. Cooper, Russell & John, Andrew, 1988. "Coordinating Coordination Failures in Keynesian Models," The Quarterly Journal of Economics, MIT Press, vol. 103(3), pages 441-63, August.
  2. Sibert, Anne, 1992. "Government finance in a common currency area," Journal of International Money and Finance, Elsevier, vol. 11(6), pages 567-578, December.
  3. Feenstra, Robert C., 1986. "Functional equivalence between liquidity costs and the utility of money," Journal of Monetary Economics, Elsevier, vol. 17(2), pages 271-291, March.
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Cited by:
  1. Jonathan Hoddenbagh & Mikhail Dmitriev, 2013. "The Optimal Design of a Fiscal Union," 2013 Papers pho497, Job Market Papers.
  2. Katrin Elborgh-Woytek & Julian Berengaut, 2006. "Beauty Queens and Wallflowers," IMF Working Papers 06/226, International Monetary Fund.
  3. Katrin Ullrich, 2007. "Introducing Instruments of Central Bank Accountability in a Monetary Union," Open Economies Review, Springer, vol. 18(3), pages 239-262, July.
  4. Ivan Werning & Emmanuel Farhi, 2012. "Fiscal Unions," NBER Working Papers 18280, National Bureau of Economic Research, Inc.
  5. Bottazzi, Laura & Manasse, Paolo, 2005. "Asymmetric Information and Monetary Policy in Common Currency Areas," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 37(4), pages 603-21, August.

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