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Optimal Currency Area and European Monetary Membership: Economics and Political Economy

Author

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  • Donato Masciandaro
  • Davide Romelli

Abstract

The recent Global Crisis are posing challenges to the stability of the European Monetary Integration process. The pillar of the European Monetary Integration is the evolution of the European Monetary Union (EMU). Being the EMU the establishment of a currency union, such as international agreement implies for the member countries the inability to use exchange rates and national monetary policy to deal with real and financial shocks. It is natural then to wonder under which conditions the net benefits of a currency union are likely to be positive, comparing the abovementioned limitations with the medium long term gains in having on the one side perpetual fixed exchange rates and on the other side the delegation of the monetary policy action to an independent and supranational central bank, i.e. the European Central Bank (ECB) that manages the European Monetary Union (EMU). A natural question arises: how to evaluate the economic pros and cons in having the EMU membership? The aim of this paper is to analyse the economics and the political economy of the EMU membership.

Suggested Citation

  • Donato Masciandaro & Davide Romelli, 2017. "Optimal Currency Area and European Monetary Membership: Economics and Political Economy," BAFFI CAREFIN Working Papers 1760, BAFFI CAREFIN, Centre for Applied Research on International Markets Banking Finance and Regulation, Universita' Bocconi, Milano, Italy.
  • Handle: RePEc:baf:cbafwp:cbafwp1760
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    References listed on IDEAS

    as
    1. Henderson, Dale W. & McKibbin, Warwick J., 1993. "A comparison of some basic monetary policy regimes for open economies: implications of different degrees of instrument adjustment and wage persistence," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 39(1), pages 221-317, December.
    2. Gauti B. Eggertsson & Neil R. Mehrotra & Sanjay R. Singh & Lawrence H. Summers, 2016. "A Contagious Malady? Open Economy Dimensions of Secular Stagnation," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 64(4), pages 581-634, November.
    3. Banaian, King & Luksetich, William A, 2001. "Central Bank Independence, Economic Freedom, and Inflation Rates," Economic Inquiry, Western Economic Association International, vol. 39(1), pages 149-161, January.
    4. Siklos, Pierre L., 2008. "No single definition of central bank independence is right for all countries," European Journal of Political Economy, Elsevier, vol. 24(4), pages 802-816, December.
    5. Handler, Heinz, 2013. "The eurozone: piecemeal approach to an optimum currency area," MPRA Paper 67183, University Library of Munich, Germany.
    6. Joshua Aizenman, 2016. "Optimal Currency Area: A 20th Century Idea For the 21st Century?," NBER Working Papers 22097, National Bureau of Economic Research, Inc.
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    More about this item

    Keywords

    OPTIMAL CURRENCY AREA; EUROPEAN MONETARY INTEGRATION; MONETARY POLICY; POLITICAL ECONOMICS;

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • E03 - Macroeconomics and Monetary Economics - - General - - - Behavioral Macroeconomics

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