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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
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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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  19. 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.
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