Monetary Union with Voluntary Participation
A monetary union is modelled as a technology that makes surprise devaluations impossible but requires voluntarily participating countries to follow the same monetary policy. It is shown that for low discount factors and sufficiently correlated shocks welfare in the union is higher than that achievable when countries coordinate while retaining their own independent policy. Optimal policy, when participation in the union is voluntary, is characterized and shown to respond to agents’ incentives to leave by tilting current and future policy in their favour. This contrasts with the static nature of optimal policy when participation is exogenously assumed. This finding implies that policy in the union will not be exclusively guided by area-wide developments but will occasionally take account of member countries’ national developments. Finally, we show that there might exist states of the world in which the union breaks apart, as occurred in several historical episodes. The Paper thus provides a first formal analysis of the forces behind the formation, sustainability and disruption of a monetary union.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
|Date of creation:||Nov 2003|
|Date of revision:|
|Contact details of provider:|| Postal: Centre for Economic Policy Research, 77 Bastwick Street, London EC1V 3PZ.|
Phone: 44 - 20 - 7183 8801
Fax: 44 - 20 - 7183 8820
|Order Information:|| Email: |
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Torsten Persson & Guido Tabellini, .
"Political Economics and Macroeconomic Policy,"
121, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
- Persson, Torsten & Tabellini, Guido, 1997. "Political Economics and Macroeconomic Policy," CEPR Discussion Papers 1759, C.E.P.R. Discussion Papers.
- Persson, T. & Tabellini, G., 1997. "Political Economics and Macroeconomic Policy," Papers 630, Stockholm - International Economic Studies.
- Persson, Torsten & Tabellini , Guido, 1997. "Political Economics and Macroeconomic Policy," Seminar Papers 630, Stockholm University, Institute for International Economic Studies.
- Torsten Persson & Guido Tabellini, 1997. "Political Economics and Macroeconomic Policy," NBER Working Papers 6329, National Bureau of Economic Research, Inc.
- Matthew B. Canzoneri & Dale W. Henderson, 1991. "Monetary Policy in Interdependent Economies: A Game-Theoretic Approach," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262031787, March.
- Silvana Tenreyro & Robert J. Barro, 2002.
"Economic effects of currency unions,"
02-4, Federal Reserve Bank of Boston.
- William Fuchs & Francesco Lippi, 2004.
"Monetary union with voluntary participation,"
Temi di discussione (Economic working papers)
512, Bank of Italy, Economic Research and International Relations Area.
- Fuchs, William & Lippi, Francesco, 2003. "Monetary Union with Voluntary Participation," CEPR Discussion Papers 4122, C.E.P.R. Discussion Papers.
- William Fuchs & Francesco Lippi, 2005. "Monetary Union with Voluntary Participation," Discussion Papers 04-013, Stanford Institute for Economic Policy Research.
- Aksoy, Yunus & De Grauwe, Paul & Dewachter, Hans, 2002. "Do asymmetries matter for European monetary policy?," European Economic Review, Elsevier, vol. 46(3), pages 443-469, March.
- Alberto Alesina & Robert J. Barro, 2002.
The Quarterly Journal of Economics,
Oxford University Press, vol. 117(2), pages 409-436.
- Thorsten Koeppl, 2004.
"Differentiability of the Efficient Frontier when Commitment to Risk Sharing is Limited,"
1049, Queen's University, Department of Economics.
- Koeppl Thorsten V., 2006. "Differentiability of the Efficient Frontier when Commitment to Risk Sharing is Limited," The B.E. Journal of Macroeconomics, De Gruyter, vol. 6(1), pages 1-6, April.
- Casella, Alessandra, 1992.
"Participation in a Currency Union,"
American Economic Review,
American Economic Association, vol. 82(4), pages 847-63, September.
- Cooley, Thomas F & Quadrini, Vincenzo, 2002. "Common Currencies versus Monetary Independence," CEPR Discussion Papers 3436, C.E.P.R. Discussion Papers.
- Friedrich Heinemann & Felix P. Huefner, 2004.
"Is The View From The Eurotower Purely European? - National Divergence And Ecb Interest Rate Policy,"
Scottish Journal of Political Economy,
Scottish Economic Society, vol. 51(4), pages 544-558, 09.
- Huefner, Felix P & Friedrich Heinemann, 2003. "Is the View from the Eurotower Purely European? - National Divergence and ECB Interest Rate Policy," Royal Economic Society Annual Conference 2003 110, Royal Economic Society.
- Heinemann, Friedrich & Huefner, Felix P., 2002. "Is the View from the Eurotower Purely European? National Divergence and ECB Interest Rate Policy," ZEW Discussion Papers 02-69, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
- Benjamin J. Cohen, 1993. "Beyond Emu: The Problem Of Sustainability," Economics and Politics, Wiley Blackwell, vol. 5(2), pages 187-203, 07.
- Edward J Green & Robert H Porter, 1997.
"Noncooperative Collusion Under Imperfect Price Information,"
Levine's Working Paper Archive
1147, David K. Levine.
- Green, Edward J & Porter, Robert H, 1984. "Noncooperative Collusion under Imperfect Price Information," Econometrica, Econometric Society, vol. 52(1), pages 87-100, January.
- Green, Edward J. & Porter, Robert H., 1982. "Noncooperative Collusion Under Imperfect Price Information," Working Papers 367, California Institute of Technology, Division of the Humanities and Social Sciences.
- Alesina, Alberto F & Grilli, Vittorio, 1991.
"The European Central Bank: Reshaping Monetary Politics in Europe,"
CEPR Discussion Papers
563, C.E.P.R. Discussion Papers.
- Alberto Alesina & Vittorio Grilli, 1991. "The European Central Bank: Reshaping Monetary Politics in Europe," NBER Working Papers 3860, National Bureau of Economic Research, Inc.
- Eric W. Bond & Jee-Hyeong Park, 2002. "Gradualism in Trade Agreements with Asymmetric Countries," Review of Economic Studies, Oxford University Press, vol. 69(2), pages 379-406.
- Jonathan Thomas & Tim Worrall, 1988. "Self-Enforcing Wage Contracts," Review of Economic Studies, Oxford University Press, vol. 55(4), pages 541-554.
- Narayana R. Kocherlakota, 1996.
"Implications of Efficient Risk Sharing without Commitment,"
Review of Economic Studies,
Oxford University Press, vol. 63(4), pages 595-609.
- Narayana Kocherlakota, 2010. "Implications of Efficient Risk Sharing Without Commitment," Levine's Working Paper Archive 2053, David K. Levine.
- Leonardo Gambacorta & Paolo Emilio Mistrulli, 2003. "Bank Capital and Lending Behaviour: Empirical Evidence for Italy," Temi di discussione (Economic working papers) 486, Bank of Italy, Economic Research and International Relations Area.
- Hamada, Koichi, 1976. "A Strategic Analysis of Monetary Interdependence," Journal of Political Economy, University of Chicago Press, vol. 84(4), pages 677-700, August.
- Avinash Dixit & Gene M. Grossman & Faruk Gul, 2000. "The Dynamics of Political Compromise," Journal of Political Economy, University of Chicago Press, vol. 108(3), pages 531-568, June.
When requesting a correction, please mention this item's handle: RePEc:cpr:ceprdp:4122. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()The email address of this maintainer does not seem to be valid anymore. Please ask to update the entry or send us the correct email address
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.