Monetary Union, Banks and Financial Integration
This paper analyzes a two-country model of money and banks to examine the conditions under which the creation of a monetary union between two countries is optimal. Is is shown that if agents resort to banks to adjust their monetary holdings through borrowing and if nobody can force them to repay their debts, it may be optimal for both countries to set up two different currencies, along with strictly positive conversion costs. A necessary condition for this is that credit market integration is limited. This arises even though both countries are perfectly identical.
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|Date of creation:||Jun 2013|
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- Aleksander Berentsen & Gabriele Camera & Christopher Waller, .
"Money, Credit and Banking,"
IEW - Working Papers
219, Institute for Empirical Research in Economics - University of Zurich.
- Williamson, Stephen & Wright, Randall, 2010.
"New Monetarist Economics: Models,"
Handbook of Monetary Economics,
in: Benjamin M. Friedman & Michael Woodford (ed.), Handbook of Monetary Economics, edition 1, volume 3, chapter 2, pages 25-96
- 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.
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