IDEAS home Printed from https://ideas.repec.org/a/cai/recosp/reco_561_0025.html
   My bibliography  Save this article

Is a Monetary Union a Never-Ending Story?

Author

Listed:
  • Francesco Menoncin
  • Marco Tronzano

Abstract

This paper extends the existing literature on the long-run sustainability of a monetary union using an optimal stopping framework. We assume that inflation is endogenous andmoney growth is the control variable. Under a particular condition on some parameters, the union goes on forever. Moreover, the effective breakdown of the union is governed by two critical thresholds (affected also by countries’ political weights): (i) a lower level for domestic inflation and (ii) an upper level for union’s inflation. The optimal time for leaving a monetary union is the first time either domestic inflation goes down the former threshold or union’s inflation goes over the latter threshold.

Suggested Citation

  • Francesco Menoncin & Marco Tronzano, 2005. "Is a Monetary Union a Never-Ending Story?," Revue économique, Presses de Sciences-Po, vol. 56(1), pages 25-49.
  • Handle: RePEc:cai:recosp:reco_561_0025
    as

    Download full text from publisher

    File URL: http://www.cairn.info/load_pdf.php?ID_ARTICLE=RECO_561_0025
    Download Restriction: free

    File URL: http://www.cairn.info/revue-economique-2005-1-page-25.htm
    Download Restriction: free

    References listed on IDEAS

    as
    1. 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.
    2. Fleming, J Marcus, 1971. "On Exchange Rate Unification," Economic Journal, Royal Economic Society, vol. 81(323), pages 467-488, September.
    3. Mark Gertler & Jordi Gali & Richard Clarida, 1999. "The Science of Monetary Policy: A New Keynesian Perspective," Journal of Economic Literature, American Economic Association, vol. 37(4), pages 1661-1707, December.
    4. Martin Evans & Paul Wachtel, 1993. "Inflation regimes and the sources of inflation uncertainty," Proceedings, Federal Reserve Bank of Cleveland, pages 475-520.
    5. Devereux, Michael, 1989. "A Positive Theory of Inflation and Inflation Variance," Economic Inquiry, Western Economic Association International, vol. 27(1), pages 105-116, January.
    6. Frank Strobel, 2001. "When to Leave a Monetary Union ?," Revue économique, Presses de Sciences-Po, vol. 52(2), pages 389-397.
    7. Alberto Alesina & Vittorio Grilli, 1993. "On The Feasibility Of A One-Speed Or Multispeed European Monetary Union," Economics and Politics, Wiley Blackwell, vol. 5(2), pages 145-165, July.
    8. Mark Gertler & Jordi Gali & Richard Clarida, 1999. "The Science of Monetary Policy: A New Keynesian Perspective," Journal of Economic Literature, American Economic Association, vol. 37(4), pages 1661-1707, December.
    9. Thomas Willett & Edward Tower, 1970. "Currency areas and exchange-rate flexibility," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 105(1), pages 48-65, September.
    10. Cukierman, Alex & Meltzer, Allan H, 1986. "A Theory of Ambiguity, Credibility, and Inflation under Discretion and Asymmetric Information," Econometrica, Econometric Society, vol. 54(5), pages 1099-1128, September.
    11. Calvo, Guillermo A, 1988. "Servicing the Public Debt: The Role of Expectations," American Economic Review, American Economic Association, vol. 78(4), pages 647-661, September.
    12. Sophia Aguirre, Maria, 2000. "Implementation of the European Monetary Union and Its Sustainability, 1999-2002: Recommendations from a Dynamic Game," Journal of Economic Integration, Center for Economic Integration, Sejong University, vol. 15, pages 19-46.
    13. Ball, Laurence, 1992. "Why does high inflation raise inflation uncertainty?," Journal of Monetary Economics, Elsevier, vol. 29(3), pages 371-388, June.
    14. Benjamin J. Cohen, 1993. "Beyond Emu: The Problem Of Sustainability," Economics and Politics, Wiley Blackwell, vol. 5(2), pages 187-203, July.
    15. Friedman, Milton, 1977. "Nobel Lecture: Inflation and Unemployment," Journal of Political Economy, University of Chicago Press, vol. 85(3), pages 451-472, June.
    16. Davis, George K & Kanago, Bryce E, 2000. "The Level and Uncertainty of Inflation: Results from OECD Forecasts," Economic Inquiry, Western Economic Association International, vol. 38(1), pages 58-72, January.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Statistics

    Access and download statistics

    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:cai:recosp:reco_561_0025. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Jean-Baptiste de Vathaire). General contact details of provider: http://www.cairn.info/revue-economique.htm .

    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 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.

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

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.