IDEAS home Printed from https://ideas.repec.org/p/lie/wpaper/49.html
   My bibliography  Save this paper

The behavioral economics of currency unions: Economic integration and monetary policy

Author

Listed:
  • Akvile Bertasiute

    (Budget Policy Monitoring Department, National Audit Office of Lithuania)

  • Domenico Massaro

    (Universita Cattolica del Sacro Cuore & Complexity Lab in Economics)

  • Matthias Weber

    () (CEFER, Bank of Lithuania & Faculty of Economics, Vilnius University)

Abstract

Currency unions are often modeled as homogeneous economies, although they are fundamentally different. The expectations that impact macroeconomic behavior in any given country are not the expectations of variables at the currency-union level but at the country level. We model these expectations with a behavioral reinforcement learning model. In our model, economic integration is of particular importance in determining whether economic behavior in a currency union is stable. Monetary policy alone is insufficient to guarantee stable economic behavior, as the central bank cannot conduct different monetary policies in different countries. These results are easily overlooked when modeling expectations as rational.

Suggested Citation

  • Akvile Bertasiute & Domenico Massaro & Matthias Weber, 2018. "The behavioral economics of currency unions: Economic integration and monetary policy," Bank of Lithuania Working Paper Series 49, Bank of Lithuania.
  • Handle: RePEc:lie:wpaper:49
    as

    Download full text from publisher

    File URL: https://www.lb.lt/en/publications/no-49-akvile-bertasiute-domenico-massaro-matthias-weber-the-behavioral-economics-of-currency-unions-economic-integration-and-monetary-policy
    File Function: Full text
    Download Restriction: no

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. repec:eee:jmacro:v:59:y:2019:i:c:p:59-77 is not listed on IDEAS
    2. Bonam, Dennis & Goy, Gavin, 2019. "Home biased expectations and macroeconomic imbalances in a monetary union," Journal of Economic Dynamics and Control, Elsevier, vol. 103(C), pages 25-42.
    3. Jump, Robert Calvert & Levine, Paul, 2019. "Behavioural New Keynesian models," Journal of Macroeconomics, Elsevier, vol. 59(C), pages 59-77.
    4. Donato Masciandaro & Davide Romelli, 2018. "To Be or not to Be a Euro Country? The Behavioural Political Economics of Currency Unions," BAFFI CAREFIN Working Papers 1883, BAFFI CAREFIN, Centre for Applied Research on International Markets Banking Finance and Regulation, Universita' Bocconi, Milano, Italy.

    More about this item

    Keywords

    Behavioral Macroeconomics; Monetary Unions; Reinforcement Learning; Expectation Formation;

    JEL classification:

    • E03 - Macroeconomics and Monetary Economics - - General - - - Behavioral Macroeconomics
    • F45 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Macroeconomic Issues of Monetary Unions
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:lie:wpaper:49. 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: (Povilas Lastauskas). General contact details of provider: http://edirc.repec.org/data/lbanklt.html .

    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.

    We have no references for this item. You can help adding them by using 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 RePEc Author Service 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.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.