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Leaving EMU: a real options perspective

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  • Frank Strobel

Abstract

The real option implicit in a country's decision of whether to leave an existing monetary union when there is uncertainty over the future benefits of this move is examined. The theoretical model used is calibrated for the current Euro-12 area by proxying policymakers’ inflation preferences with unemployment rates and debt-to-GDP ratios. A robust group of countries is observed that would choose to remain within EMU consisting of Belgium, Finland, Greece and Italy; France and Spain loosely also belong to this core. Only Luxembourg would robustly want to leave EMU; Ireland and The Netherlands, however, complement that core closely.

Suggested Citation

  • Frank Strobel, 2004. "Leaving EMU: a real options perspective," Discussion Papers 04-16, Department of Economics, University of Birmingham.
    • Handle: RePEc:bir:birmec:04-16
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    References listed on IDEAS

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    1. Barro, Robert J. & Gordon, David B., 1983. "Rules, discretion and reputation in a model of monetary policy," Journal of Monetary Economics, Elsevier, vol. 12(1), pages 101-121.
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    5. Frank Strobel, 2001. "When to Leave a Monetary Union ?," Revue économique, Presses de Sciences-Po, vol. 52(2), pages 389-397.
    6. Barro, Robert J & Gordon, David B, 1983. "A Positive Theory of Monetary Policy in a Natural Rate Model," Journal of Political Economy, University of Chicago Press, vol. 91(4), pages 589-610, August.
    7. Kon Lai, 1997. "On the disparate evidence on trend stationarity in inflation rates: a reappraisal," Applied Economics Letters, Taylor & Francis Journals, vol. 4(5), pages 305-309.
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    2. Chung-Gee Lin & Yu-Shan Wang, 2012. "Evaluating natural resource projects with embedded options and limited reserves," Applied Economics, Taylor & Francis Journals, vol. 44(12), pages 1471-1482, April.
    3. Anke Mönnig, 2012. "Balancing the European Monetary Union - an Impact Analysis on the Return of National Currencies," GWS Discussion Paper Series 12-8, GWS - Institute of Economic Structures Research.
    4. Anke Mönnig, 2012. "Balancing the European Currency Union - an Impact Analysis on the Return of National Currencies," EcoMod2012 3831, EcoMod.

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    Keywords

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    JEL classification:

    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • F3 - International Economics - - International Finance

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