We Should Distinguish between Financial Integration and Monetary Unification

In the conference from which this book arose, we mainly discussed two issues, financial integration and monetary unification. Although these are often closely linked together in practice, as now in Europe, in theory they are separable issues. Thus, in theory, we could have virtually complete financial integration alongside freely floating, flexible exchange rates. Indeed, if purchasing power parity approximately held, so that E e ˙ t + 1 = f E ( P ˙ t + 1 − P ˙ * t + 1 ) MathType@MTEF@5@5@+=feaagCart1ev2aaatCvAUfeBSjuyZL2yd9gzLbvyNv2CaerbuLwBLnhiov2DGi1BTfMBaeXatLxBI9gBaerbd9wDYLwzYbItLDharqqtubsr4rNCHbGeaGqiVu0Je9sqqrpepC0xbbL8F4rqqrFfpeea0xe9Lq=Jc9vqaqpepm0xbba9pwe9Q8fs0=yqaqpepae9pg0FirpepeKkFr0xfr=xfr=xb9adbaqaaeaaciGaaiaabeqaamaabaabaaGcbaGaamyraiqadwgagaGaamaaBaaaleaacaWG0bGaey4kaSIaaGymaaqabaGccqGH9aqpcaWGMbGaaGPaVlaadweacaGGOaGabmiuayaacaWaaSbaaSqaaiaadshacqGHRaWkcaaIXaaabeaakiabgkHiTiqadcfagaGaaiaacQcadaWgaaWcbaGaamiDaiabgUcaRiaaigdaaeqaaOGaaiykaaaa@4909@ $$E{\dot e_{t + 1}} = f\,E({\dot P_{t + 1}} - \dot P{*_{t + 1}})$$