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Currency Union with and without Banking Union

  • Bignon, V.
  • Breton, R.
  • Rojas Breu, M.

This paper analyzes a two-country model of currency, banks and endogenous default to study whether impediments to credit market integration across jurisdictions impact the desirability of a currency union. We show that when those impediments induce a higher cost for banks to manage cross-border credit compared to domestic credit, welfare may not be maximal under a regime of currency union. But a banking union that would suppress hurdles to banking integration restores the optimality of that currency arrangement. The empirical and policy implications in terms of banking union are discussed.

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File URL: http://www.banque-france.fr/uploads/tx_bdfdocumentstravail/DT-450_01.pdf
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Paper provided by Banque de France in its series Working papers with number 450.

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Length: 44 pages
Date of creation: 2013
Date of revision:
Handle: RePEc:bfr:banfra:450
Contact details of provider: Postal:
Banque de France 31 Rue Croix des Petits Champs LABOLOG - 49-1404 75049 PARIS

Web page: http://www.banque-france.fr/

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  1. Clerc, L. & Dellas, H. & Loisel, O., 2010. "To be or not to be in monetary union: A synthesis," Working papers 308, Banque de France.
  2. Andolfatto, David, 2010. "Essential interest-bearing money," Journal of Economic Theory, Elsevier, vol. 145(4), pages 1495-1507, July.
  3. Ping He & Lixin Huang & Randall Wright, 2005. "Money And Banking In Search Equilibrium," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 46(2), pages 637-670, 05.
  4. Reint Gropp & Anil Kashyap, 2009. "A New Metric for Banking Integration in Europe," NBER Working Papers 14735, National Bureau of Economic Research, Inc.
  5. Aleksander Berentsen & Gabriele Camera & Christopher Waller, 2005. "Money, Credit and Banking," CESifo Working Paper Series 1617, CESifo Group Munich.
  6. Pedro Gomis-Porqueras & Daniel R. Sanches, 2011. "Optimal monetary policy in a model of money and credit," Working Papers 11-28, Federal Reserve Bank of Philadelphia.
  7. Philipp Hartmann & Angela Maddaloni & Simone Manganelli, 2003. "The Euro-area Financial System: Structure, Integration, and Policy Initiatives," Oxford Review of Economic Policy, Oxford University Press, vol. 19(1), pages 180-213.
  8. Viral V. Acharya & Sascha Steffen, 2013. "The "Greatest" Carry Trade Ever? Understanding Eurozone Bank Risks," NBER Working Papers 19039, National Bureau of Economic Research, Inc.
  9. Kyongwook Choi & Brandon Dupont, 2007. "Revisiting structural change and market integration in late 19th century American capital markets," Applied Economics, Taylor & Francis Journals, vol. 39(21), pages 2733-2741.
  10. Aiyagari, S. Rao & Williamson, Stephen D., 2000. "Money and Dynamic Credit Arrangements with Private Information," Journal of Economic Theory, Elsevier, vol. 91(2), pages 248-279, April.
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  12. Bertay, A.C. & Demirgüc-Kunt, A. & Huizinga, H.P., 2011. "Is the Financial Safety Net a Barrier to Cross-Border Banking?," Discussion Paper 2011-132, Tilburg University, Center for Economic Research.
  13. John A. James & David F. Weiman, 2007. "The Political Economy of the US Monetary Union: The Civil War Era as a Watershed," American Economic Review, American Economic Association, vol. 97(2), pages 271-275, May.
  14. Michele Manna, 2011. "Home bias in interbank lending and banks� resolution regimes," Temi di discussione (Economic working papers) 816, Bank of Italy, Economic Research and International Relations Area.
  15. Dean Corbae & Joseph Ritter, 2004. "Decentralized credit and monetary exchange without public record keeping," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 24(4), pages 933-951, November.
  16. Tai-wei Hu & John Kennan & Neil Wallace, 2009. "Coalition-Proof Trade and the Friedman Rule in the Lagos-Wright Model," Journal of Political Economy, University of Chicago Press, vol. 117(1), pages 116-137, 02.
  17. Russell Cooper & Hubert Kempf, 2004. "Overturning Mundell : Fiscal policy in a monetary union," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00266420, HAL.
  18. Laurence Scialom & Michel Aglietta, 2003. "The Challenge of European Integration for Prudential Policy," FMG Special Papers sp152, Financial Markets Group.
  19. Acharya, Viral V & Steffen, Sascha, 2013. "The "Greatest" Carry Trade Ever? Understanding Eurozone Bank Risks," CEPR Discussion Papers 9432, C.E.P.R. Discussion Papers.
  20. Chari, V.V. & Kehoe, Patrick J., 2007. "On the need for fiscal constraints in a monetary union," Journal of Monetary Economics, Elsevier, vol. 54(8), pages 2399-2408, November.
  21. Thomas J. Sargent, 2012. "Nobel Lecture: United States Then, Europe Now," Journal of Political Economy, University of Chicago Press, vol. 120(1), pages 1 - 40.
  22. Nicola Jentzsch, 2007. "Do we need a European Directive for Credit Reporting?," CESifo DICE Report, Ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 5(2), pages 48-54, 07.
  23. Jochem, Axel & Volz, Ute, 2011. "Portfolio holdings in the euro area - home bias and the role of international, domestic and sector-specific factors," Discussion Paper Series 1: Economic Studies 2011,07, Deutsche Bundesbank, Research Centre.
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