Deciding on Monetary Integration: An Operational Approach
We develop a simple, n-country model to consider the costs and benefits of joining a monetary union. Our factor-OCA framework encompasses different approaches and allows us to consider the optimal composition of a monetary union for all the potential members. We illustrate the model in practice with various simulations and we develop two empirical applications based on expanding EMU and on whether there would be a benefit to deepening Nafta to be a monetary union. While some commentators have called for a one-world currency, we find full monetary integration has costs for some countries and benefits for others, perhaps explaining why this remains a controversial issue.
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- William Poole, 1970. "Optimal Choice of Monetary Policy Instruments in a Simple Stochastic Macro Model," The Quarterly Journal of Economics, Oxford University Press, vol. 84(2), pages 197-216.
- Barry J. Eichengreen & Tamim Bayoumi, 1993.
"Monetary and Exchange Rate Arrangements for Nafta,"
IMF Working Papers
93/20, International Monetary Fund.
- Charles R. Bean, 1992.
"Economic and Monetary Union in Europe,"
Journal of Economic Perspectives,
American Economic Association, vol. 6(4), pages 31-52, Fall.
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