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When a Monetary Union Fails: A Parable

  • Guillaume Cheikbossian

    ()

The political imperative is an important driving force behind the dissolution of monetary unions. But economic factors are also likely to play an important role. Using a two-country model of government finance in a common currency area, we suggest that when countries are very heterogeneous in terms of financing requirements or in terms of tolerance for inflation, one of them will benefit from achieving monetary independence. The results are contrasted to the breakup of the Austro-Hungarian crown area in the 1920s and especially to that of the ruble area in the 1990s. Copyright Kluwer Academic Publishers 2001

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File URL: http://hdl.handle.net/10.1023/A:1008384413848
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Article provided by Springer in its journal Open Economies Review.

Volume (Year): 12 (2001)
Issue (Month): 2 (April)
Pages: 181-195

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Handle: RePEc:kap:openec:v:12:y:2001:i:2:p:181-195
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  1. repec:imf:imfpdp:9415 is not listed on IDEAS
  2. Casella, Alessandra, 1992. "Participation in a Currency Union," American Economic Review, American Economic Association, vol. 82(4), pages 847-63, September.
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  4. Hamada, Koichi, 1976. "A Strategic Analysis of Monetary Interdependence," Journal of Political Economy, University of Chicago Press, vol. 84(4), pages 677-700, August.
  5. Rudiger Dornbusch, 1992. "Monetary problems of post-communism: Lessons from the end of the Austro-Hungarian empire," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 128(3), pages 391-424, September.
  6. Alessandra Casella & Jonathan Feinstein, 1988. "Management of a Common Currency," NBER Working Papers 2740, National Bureau of Economic Research, Inc.
  7. Hernán Cortés Douglas & Richard K. Abrams, 1993. "Introduction of a New National Currency; Policy, Institutional, and Technical Issues," IMF Working Papers 93/49, International Monetary Fund.
  8. Aizenman, Joshua, 1992. "Competitive Externalities and the Optimal Seigniorage," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 24(1), pages 61-71, February.
  9. Michael G. Spencer & Peter M. Garber, 1992. "The Dissolution of the Austro-Hungarian Empire; Lessons for Currency Reform," IMF Working Papers 92/66, International Monetary Fund.
  10. Andrabi, Tahir, 1997. "Seigniorage, Taxation, and Weak Government," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 29(1), pages 106-26, February.
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