Mundell Revisited: A simple approach to the Costs and Benefits of a Single Currency Area
This paper develops an analytical model to evaluate the costs and benefits of a single currency area within a unified framework, inspired by the separate arguments of Mundell (1961) and (1973). The more familiar argument is that, in the presence of country-specific shocks, a single currency area imposes a welfare cost associated with the lack of exchange rate adjustment. But Mundell (1973) argues that a single currency area offers risk-sharing benefits in the face of country-specific shocks and restricted ability for capital markets to facilitate consumption insurance. In our model, a single currency area, as compared with a system of national currencies and floating exchange rates, brings both welfare costs associated with the absence of exchange rate adjustment and welfare benefits associated with risksharing. The model provides a utility-based comparison of costs versus benefits. While theoretically, either monetary regime may dominate, quantitatively, the net welfare benefits of a single currency area are likely to be negative.
|Date of creation:||Nov 2000|
|Date of revision:|
|Contact details of provider:|| Postal: 55th Floor , Two International Finance Centre , 8 Finance Street , Central, Hong Kong|
Phone: (852)2878 1978
Fax: (852)2878 7006
Web page: http://www.hkimr.org
More information through EDIRC
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.:
- Barry Eichengreen, 2000.
"Does Mercosur Need a Single Currency?,"
- Eichengreen, Barry, 1998. "Does Mercosur Need a Single Currency?," Center for International and Development Economics Research, Working Paper Series qt6fw631qn, Center for International and Development Economics Research, Institute for Business and Economic Research, UC Berkeley.
- Barry Eichengreen., 1998. "Does Mercosur Need a Single Currency?," Center for International and Development Economics Research (CIDER) Working Papers C98-103, University of California at Berkeley.
- Barry Eichengreen, 1998. "Does Mercosur Need a Single Currency," NBER Working Papers 6821, National Bureau of Economic Research, Inc.
- Bayoumi, Tamim & Eichengreen, Barry & Mauro, Paolo, 2000.
"On Regional Monetary Arrangements For ASEAN,"
CEPR Discussion Papers
2411, C.E.P.R. Discussion Papers.
- Bayoumi, Tamim & Eichengreen, Barry & Mauro, Paolo, 2000. "On Regional Monetary Arrangements for ASEAN," Journal of the Japanese and International Economies, Elsevier, vol. 14(2), pages 121-148, June.
When requesting a correction, please mention this item's handle: RePEc:hkm:wpaper:092000. 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: (HKIMR)
If references are entirely missing, you can add them using this form.