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When to Leave a Monetary Union: Now or Later?

Author

Listed:
  • Strobel, F.

Abstract

Using a two-country model of monetary union where policymakers minimize the continuous-time equivalent of a Barro-Gordon-type loss function, we examine the value of the option of monetary break-up when the national preference parameters associated with an inflationary surprise follow correlated geometric Brownian motions.

Suggested Citation

  • Strobel, F., 1999. "When to Leave a Monetary Union: Now or Later?," Discussion Papers 99-23, Department of Economics, University of Birmingham.
  • Handle: RePEc:bir:birmec:99-23
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    References listed on IDEAS

    as
    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.
    2. Strobel, F., 1999. "Monetary Integration, Stochastic Inflation Preferences and the Value of Waiting," Discussion Papers 99-06, Department of Economics, University of Birmingham.
    3. Pindyck, Robert S, 1991. "Irreversibility, Uncertainty, and Investment," Journal of Economic Literature, American Economic Association, vol. 29(3), pages 1110-1148, September.
    4. Avinash Dixit, 1992. "Investment and Hysteresis," Journal of Economic Perspectives, American Economic Association, vol. 6(1), pages 107-132, Winter.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    MONETARY UNION ; INFLATION ; MONEY;

    JEL classification:

    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
    • F3 - International Economics - - International Finance
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation

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