Monetary Integration and Economic Reform
Recent research in contract theory views ownership as a substitute for complete contracts. Here, this approach is applied to monetary integration. Countries face a coordination problem conducting monetary policy. Negative spillovers ensure uncoordinated policy generates too high inflation. Ex ante, policymakers can undertake politically costly economic reform. This has a positive spillover because it improves the outcome of the monetary policy game. Ex post contracting over policy may be possible but it supposed that ex ante contracting over reform and monetary policy is not. This paper analyzes when monetary union is a good substitute for this inability to commit.
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Volume (Year): 109 (1999)
Issue (Month): 452 (January)
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