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Currency Union with and without Banking Union

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  • Bignon, Vincent
  • Breton, Régis
  • Rojas Breu, Mariana

Abstract

This paper analyzes a two-country model of currency, banks and endogenous default to study whether impediments to credit market integration across jurisdictions impact the desirability of a currency union. We show that when those impediments induce a higher cost for banks to manage cross-border credit compared to domestic credit, welfare may not be maximal under a regime of currency union. But a banking union that would suppress hurdles to banking integration restores the optimality of that currency arrangement. The empirical and policy implications in terms of banking union are discussed.

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Bibliographic Info

Paper provided by Paris Dauphine University in its series Economics Papers from University Paris Dauphine with number 123456789/12105.

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Date of creation: 2013
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Publication status: Published in Documents de travail de la Banque de France, 2013
Handle: RePEc:dau:papers:123456789/12105

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Keywords: E42; E50; F3; G21;

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