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Effects of Monetary Unions on Inequalities (Para Birliklerinin Esitsizlikler Uzerindeki Etkileri)

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  • Timur Hulagu
  • Devrim Ikizler

Abstract

This paper analyzes how forming a monetary union affects consumption and earnings inequalities caused by adopting a common currency. We use a two country overlapping-generations model to investigate these effects. When countries choose to form a monetary union, the country with higher initial inflation will deffnitely experience an increase in its inequalities. In the country with lower initial inflation, however, inequalities might go in either direction since the inflationary effect of uniting its monetary policy with a high inflation country can dominate the reducing effect of vanished trade frictions on inflation.

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Bibliographic Info

Paper provided by Research and Monetary Policy Department, Central Bank of the Republic of Turkey in its series Working Papers with number 1014.

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Date of creation: 2010
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Handle: RePEc:tcb:wpaper:1014

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Keywords: Monetary Unions; Inflation; Inequality; Heterogeneity;

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  1. Marco Celentani & J. Conde-Ruiz & Klaus Desmet, 2007. "Inflation in Open Economies with Complete Markets," Economic Theory, Springer, vol. 31(2), pages 271-291, May.
  2. Matthias Doepke & Martin Schneider, 2006. "Inflation and the Redistribution of Nominal Wealth," Journal of Political Economy, University of Chicago Press, vol. 114(6), pages 1069-1097, December.
  3. Albanesi, Stefania, 2007. "Inflation and inequality," Journal of Monetary Economics, Elsevier, vol. 54(4), pages 1088-1114, May.
  4. Andrés Erosa & Gustavo Ventura, 2000. "On Inflation as a Regressive Consumption Tax," UWO Department of Economics Working Papers 20001, University of Western Ontario, Department of Economics.
  5. Joydeep Bhattacharya & Joseph H. Haslag & Antoine Martin, 2004. "Heterogeneity, redistribution, and the Friedman rule," Research Working Paper RWP 04-01, Federal Reserve Bank of Kansas City.
  6. Russell Cooper & Hubert Kempf, 2003. "Commitment and the Adoption of a Common Currency," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 44(1), pages 119-142, February.
  7. Albanesi, Stefania, 2003. "Optimal and Time-Consistent Monetary and Fiscal Policy with Heterogeneous Agents," CEPR Discussion Papers 3713, C.E.P.R. Discussion Papers.
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