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Leaving EMU: a real options perspective

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  • Frank Strobel

Abstract

The real option implicit in a country's decision of whether to leave an existing monetary union when there is uncertainty over the future benefits of this move is examined. The theoretical model used is calibrated for the current Euro-12 area by proxying policymakers' inflation preferences with unemployment rates and debt-to-GDP ratios. A robust group of countries is observed that would choose to remain within EMU consisting of Belgium, Finland, Greece and Italy; France and Spain loosely also belong to this core. Only Luxembourg would robustly want to leave EMU; Ireland and The Netherlands, however, complement that core closely.

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File URL: http://www.tandfonline.com/doi/abs/10.1080/00036840500166308
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Bibliographic Info

Article provided by Taylor & Francis Journals in its journal Applied Economics.

Volume (Year): 37 (2005)
Issue (Month): 13 ()
Pages: 1449-1453

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Handle: RePEc:taf:applec:v:37:y:2005:i:13:p:1449-1453

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  1. Robert J. Barro, 1983. "Inflationary Finance under Discretion and Rules," Canadian Journal of Economics, Canadian Economics Association, vol. 16(1), pages 1-16, February.
  2. Barro, Robert J & Gordon, David B, 1983. "A Positive Theory of Monetary Policy in a Natural Rate Model," Journal of Political Economy, University of Chicago Press, vol. 91(4), pages 589-610, August.
  3. Barro, Robert J. & Gordon, David B., 1983. "Rules, discretion and reputation in a model of monetary policy," Journal of Monetary Economics, Elsevier, vol. 12(1), pages 101-121.
  4. Frank Strobel, 2001. "When to Leave a Monetary Union ?," Revue économique, Presses de Sciences-Po, vol. 52(2), pages 389-397.
  5. Culver, Sarah E & Papell, David H, 1997. "Is There a Unit Root in the Inflation Rate? Evidence from Sequential Break and Panel Data Models," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 12(4), pages 435-44, July-Aug..
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Cited by:
  1. Anke Mönnig, 2012. "Balancing the European Monetary Union - an Impact Analysis on the Return of National Currencies," GWS Discussion Paper Series 12-8, GWS - Institute of Economic Structures Research.

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