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Coalition formation in international monetary policy games

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  • Kohler, Marion

Abstract

It is well known from the analysis of monetary policy co-ordination of two countries that co-ordination often Pareto-dominates the outcome of the non-co-operative game. Hence both countries will have an incentive to form a union when it is certain that the other country will also join. However, in an n-country model, free-riding incentives restrict the size of a stable coalition to less then n countries. Since the coalition members are bound by the union's discipline, an outsider can successfully export inflation without fearing that the insiders will try to do the same. The formation of a large currency bloc is not sustainable since it would impose too much discipline on all participants. However, the co-existence of several smaller currency blocs may be a second-best solution to the free-riding problem of monetary policy co-ordination.
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  • Kohler, Marion, 2002. "Coalition formation in international monetary policy games," Journal of International Economics, Elsevier, vol. 56(2), pages 371-385, March.
  • Handle: RePEc:eee:inecon:v:56:y:2002:i:2:p:371-385
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    Cited by:

    1. Canofari, Paolo & Di Bartolomeo, Giovanni, 2017. "Regime switches under policy uncertainty in monetary unions," European Journal of Political Economy, Elsevier, pages 124-132.
    2. Paolo Canofari & Giovanni Bartolomeo & Giovanni Piersanti, 2014. "Theory and Practice of Contagion in Monetary Unions: Domino Effects in EMU Mediterranean Countries," International Advances in Economic Research, Springer;International Atlantic Economic Society, pages 259-267.
    3. Karp, Larry & Simon, Leo, 2013. "Participation games and international environmental agreements: A non-parametric model," Journal of Environmental Economics and Management, Elsevier, vol. 65(2), pages 326-344.
    4. repec:kap:iaecre:v:20:y:2014:i:3:p:259-267 is not listed on IDEAS
    5. Johan Eyckmans & Michael Finus, 2004. "An Almost Ideal Sharing Scheme for Coalition Games with Externalities," Energy, Transport and Environment Working Papers Series ete0414, KU Leuven, Department of Economics - Research Group Energy, Transport and Environment.
    6. Ludovic Renou, 2011. "Group Formation and Governance," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 13(4), pages 595-630, August.
    7. Bas van Aarle & Giovanni Di Bartolomeo & Jacob Engwerda & Joseph Plasmans, 2002. "Staying Together or Breaking Apart: Policy-makers’ Endogenous Coalitions Formation in the European Economic and Monetary Union," CESifo Working Paper Series 748, CESifo Group Munich.
    8. Bilbiie, Florin O., 2011. "Designing domestic institutions for international monetary policy cooperation: A Utopia?," Journal of International Money and Finance, Elsevier, pages 393-409.
    9. Kohler, Marion, 2004. "Competing coalitions in international monetary policy games," HWWA Discussion Papers 258, Hamburg Institute of International Economics (HWWA).
    10. Michael Finus & Bianca Rundshagen, 2006. "A Micro Foundation of Core Stability in Positive-Externality Coalition Games," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 162(2), pages 329-346, June.
    11. Eyckmans, Johan & Finus, Michael & Mallozzi, Lina, 2011. "A New Class of Welfare Maximizing Stable Sharing Rules for Partition Function Games with Externalities," Working Papers 2011/08, Hogeschool-Universiteit Brussel, Faculteit Economie en Management.
    12. Eyckmans, Johan & Finus, Michael & Mallozzi, Lina, 2011. "A New Class of Welfare Maximizing Stable Sharing Rules for Partition Function Games with Externalities," Working Papers 2011/08, Hogeschool-Universiteit Brussel, Faculteit Economie en Management.
    13. Giovanni Di Bartolomeo & Jacob Engwerda & Joseph Plasmans & Bas van Aarle, 2005. "Monetary Unions: The Policy Coordination Issue," Macroeconomics 0504023, EconWPA.

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