IDEAS home Printed from https://ideas.repec.org/p/fip/fedfap/99-04.html
   My bibliography  Save this paper

The ins and outs of joining a monetary union

Author

Listed:
  • Mark M. Spiegel

Abstract

Among the reasons for joining a monetary union, attention has fallen on the potential for improving a nation's monetary policy credibility. In this paper, we examine the decision problem faced by an outside country deciding whether or not to join an existing monetary union. Our analysis demonstrates that enhanced credibility stemming from differences in country characteristics along are unlikely to lead to a mutually-desirable union expansion. The intuition is that any country which finds the characteristics of the existing monetary union members relatively desirable must be relatively undesirable itself. To motivate mutually desirable entry, other potential gains must be considered. We concentrate on the fact that an outside country is likely to be quite small relative to an existing monetary union, and lack the resistance to inflation which comes with market power in trade. Consideration of this \"market power effect\" raises the potential for mutually-desirable union expansion.

Suggested Citation

  • Mark M. Spiegel, 1998. "The ins and outs of joining a monetary union," Working Papers in Applied Economic Theory 99-04, Federal Reserve Bank of San Francisco.
    • Handle: RePEc:fip:fedfap:99-04
    as

    Download full text from publisher

    File URL: http://www.frbsf.org/econrsrch/workingp/wp99-04.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Charles R. Bean, 1992. "Economic and Monetary Union in Europe," Journal of Economic Perspectives, American Economic Association, vol. 6(4), pages 31-52, Fall.
    2. 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.
    3. C Bean, 1992. "Economic and Monetary Union," CEP Discussion Papers dp0086, Centre for Economic Performance, LSE.
    4. Casella, Alessandra, 1992. "Participation in a Currency Union," American Economic Review, American Economic Association, vol. 82(4), pages 847-863, September.
    5. Alberto Alesina & Vittorio Grilli, 1991. "The European Central Bank: Reshaping Monetary Politics in Europe," NBER Working Papers 3860, National Bureau of Economic Research, Inc.
    6. Tamim Bayoumi & Barry Eichengreen, 1992. "Shocking Aspects of European Monetary Unification," NBER Working Papers 3949, National Bureau of Economic Research, Inc.
    7. Tamim Bayoumi, 1994. "A Formal Model of Optimum Currency Areas," IMF Staff Papers, Palgrave Macmillan, vol. 41(4), pages 537-554, December.
    8. Canzoneri, Matthew B & Rogers, Carol Ann, 1990. "Is the European Community an Optimal Currency Area? Optimal Taxation versus the Cost of Multiple Currencies," American Economic Review, American Economic Association, vol. 80(3), pages 419-433, June.
    9. Martin, Philippe, 1995. "Free-riding, convergence and two-speed monetary unification in Europe," European Economic Review, Elsevier, vol. 39(7), pages 1345-1364, August.
    10. Lane, Philip R., 1997. "Inflation in open economies," Journal of International Economics, Elsevier, vol. 42(3-4), pages 327-347, May.
    11. Matthew B. Canzoneri & Dale W. Henderson, 1991. "Monetary Policy in Interdependent Economies: A Game-Theoretic Approach," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262031787, December.
    12. Charles Wyplosz, 1997. "EMU: Why and How It Might Happen," Journal of Economic Perspectives, American Economic Association, vol. 11(4), pages 3-21, Fall.
    13. Maurice Obstfeld, 1997. "Europe's Gamble," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 28(2), pages 241-317.
    14. Alesina, Alberto F & Grilli, Vittorio, 1993. "On the Feasibility of a One- or Multi-Speed European Monetary Union," CEPR Discussion Papers 792, C.E.P.R. Discussion Papers.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Meshack Tjirongo, 1995. "Short-term stabilization versus long-term price stability: evaluating Namibia`s membership of the Common Monetary Area," Economics Series Working Papers WPS/1995-18, University of Oxford, Department of Economics.
    2. Beetsma, Roel M W J & Bovenberg, A Lans, 2000. "Designing Fiscal and Monetary Institutions for a European Monetary Union," Public Choice, Springer, vol. 102(3-4), pages 247-269, March.
    3. Horvath, Julius, 2003. "Optimum currency area theory: A selective review," BOFIT Discussion Papers 15/2003, Bank of Finland Institute for Emerging Economies (BOFIT).
    4. Martin, Philippe, 1995. "Free-riding, convergence and two-speed monetary unification in Europe," European Economic Review, Elsevier, vol. 39(7), pages 1345-1364, August.
    5. Ricci, Luca Antonio, 2008. "A Model of an Optimum Currency Area," Economics - The Open-Access, Open-Assessment E-Journal (2007-2020), Kiel Institute for the World Economy (IfW Kiel), vol. 2, pages 1-31.
    6. Kohler, Marion, 2002. "Coalition formation in international monetary policy games," Journal of International Economics, Elsevier, vol. 56(2), pages 371-385, March.
    7. Lane, Philip R., 1996. "Stabilization policy in a currency union," Economics Letters, Elsevier, vol. 53(1), pages 53-60, October.
    8. Kohler, Marion, 2004. "Competing Coalitions in International Monetary Policy Games," Discussion Paper Series 26274, Hamburg Institute of International Economics.
    9. Beetsma, Roel M. W. J. & Lans Bovenberg, A., 1998. "Monetary union without fiscal coordination may discipline policymakers," Journal of International Economics, Elsevier, vol. 45(2), pages 239-258, August.
    10. Gilles Saint Paul & Samuel Bentolila, 2000. "Will EMU increase eurosclerosis?," Economics Working Papers 449, Department of Economics and Business, Universitat Pompeu Fabra.
    11. Mohd Hussain Kunroo, 2015. "Theory of Optimum Currency Areas," Review of Market Integration, India Development Foundation, vol. 7(2), pages 87-116, August.
    12. Schor, Armand-Denis, 2000. "La théorie des zones monétaires optimales : l’optimum, le praticable, le crédible et le réel," L'Actualité Economique, Société Canadienne de Science Economique, vol. 76(4), pages 545-576, décembre.
    13. Charles Wyplosz, 1997. "EMU: Why and How It Might Happen," Journal of Economic Perspectives, American Economic Association, vol. 11(4), pages 3-21, Fall.
    14. Daniel Laskar & Claude Jessua, 1996. "Accords régionaux : une approche en termes de jeux coopératifs," Revue Économique, Programme National Persée, vol. 47(3), pages 797-806.
    15. Xavier Debrun, 2000. "Fiscal Rules in a Monetary Union: A Short-Run Analysis," Open Economies Review, Springer, vol. 11(4), pages 323-358, October.
    16. Meshack Tjirongo, 1995. "Short-term stabilization versus long-term price stability: evaluating Namibia's membership of the Common Monetary Area," CSAE Working Paper Series 1995-18, Centre for the Study of African Economies, University of Oxford.
    17. Singleton,John, 2010. "Central Banking in the Twentieth Century," Cambridge Books, Cambridge University Press, number 9780521899093.
    18. Marc-Alexandre Sénégas, 2010. "La théorie des zones monétaires optimales au regard de l'euro : Quels enseignements après dix années d'union économique et monétaire en Europe ?," Revue d'économie politique, Dalloz, vol. 120(2), pages 379-419.
    19. Croix de la, D. & Urbain, J.R.Y.J., 1996. "Intertemporal substitution in import demand and habit formation," Research Memorandum 004, Maastricht University, Maastricht Research School of Economics of Technology and Organization (METEOR).
    20. Krumm, Raimund & Herz, Bernhard, 1996. "The economic implications of voting requirements for the establishment of the European Monetary Union," Tübinger Diskussionsbeiträge 82, University of Tübingen, School of Business and Economics.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:fip:fedfap:99-04. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Federal Reserve Bank of San Francisco Research Library (email available below). General contact details of provider: https://edirc.repec.org/data/frbsfus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.