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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. Aleksander Berentsen & Gabriele Camera & Christopher Waller, . "Money, Credit and Banking," IEW - Working Papers 219, Institute for Empirical Research in Economics - University of Zurich.
  2. Andolfatto, David, 2010. "Essential interest-bearing money," Journal of Economic Theory, Elsevier, vol. 145(4), pages 1495-1507, July.
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  4. Alberto Alesina & Robert J. Barro, 2002. "Currency Unions," The Quarterly Journal of Economics, MIT Press, vol. 117(2), pages 409-436, May.
  5. Clerc, L. & Dellas, H. & Loisel, O., 2010. "To be or not to be in monetary union: A synthesis," Working papers 308, Banque de France.
  6. 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.
  7. He, Ping & Huang, Lixin & Wright, Randall, 2008. "Money, banking, and monetary policy," Journal of Monetary Economics, Elsevier, vol. 55(6), pages 1013-1024, September.
  8. Qing Liu & Shouyong Shi, 2006. "Currency Areas and Monetary Coordination," Working Papers tecipa-226, University of Toronto, Department of Economics.
  9. Robert Barro & Silvana Tenreyro, 2007. "Economic Effects Of Currency Unions," Economic Inquiry, Western Economic Association International, vol. 45(1), pages 1-23, 01.
  10. White, Eugene Nelson, 1982. "The Political Economy of Banking Regulation, 1864–1933," The Journal of Economic History, Cambridge University Press, vol. 42(01), pages 33-40, March.
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  12. Reint Gropp & Anil Kashyap, 2009. "A New Metric for Banking Integration in Europe," NBER Working Papers 14735, National Bureau of Economic Research, Inc.
  13. repec:mcb:jmoncb:v:45:y:2013:i::p:701-730 is not listed on IDEAS
  14. Laurence Scialom & Michel Aglietta, 2003. "The Challenge of European Integration for Prudential Policy," FMG Special Papers sp152, Financial Markets Group.
  15. Nicola Jentzsch, 2007. "Do we need a European Directive for Credit Reporting?," CESifo DICE Report, Ifo Institute for Economic Research at the University of Munich, vol. 5(2), pages 48-54, 07.
  16. Sylla, Richard, 1969. "Federal Policy, Banking Market Structure, and Capital Mobilization in the United States, 1863–1913," The Journal of Economic History, Cambridge University Press, vol. 29(04), pages 657-686, December.
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  18. Stijn Claessens & Neeltje Horen, 2014. "Foreign Banks: Trends and Impact," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 46(s1), pages 295-326, 02.
  19. Pedro Gomis-Porqueras & Daniel R. Sanches, 2010. "Optimal monetary policy in a model of money and credit," Working Papers 11-4, Federal Reserve Bank of Philadelphia.
  20. John A. James & David F. Weiman, 2010. "From Drafts to Checks: The Evolution of Correspondent Banking Networks and the Formation of the Modern U.S. Payments System, 1850-1914," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 42(2-3), pages 237-265, 03.
  21. repec:dgr:kubcen:2011132 is not listed on IDEAS
  22. James, John A., 1976. "The Evolution of the National Money Market, 1888–1911," The Journal of Economic History, Cambridge University Press, vol. 36(01), pages 271-275, March.
  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.
  24. 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.
  25. Dean Corbae & Joseph Ritter, 2004. "Decentralized credit and monetary exchange without public record keeping," Economic Theory, Springer, vol. 24(4), pages 933-951, November.
  26. 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.
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