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Theory and practice of contagion in monetary unions. Domino effects in EU Mediterranean countries: The case of Greece, Italy and Spain

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  • Canofari Paolo
  • Di Bartolomeo Giovanni
  • Piersanti Giovanni

Abstract

This paper analyzes strategic interactions and contagion effects in countries joined to a monetary union. Using game theory and a cost-benefit analysis, the paper determines the set of equilibrium solutions under which country-specific shocks are transmitted to other member countries giving rise to contagion. Numerical simulations, obtained by a simple calibration of the model on some key Mediterranean countries of the Euro Zone, show the probabilities of contagion from Greece to Spain and Italy.

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  • Canofari Paolo & Di Bartolomeo Giovanni & Piersanti Giovanni, 2013. "Theory and practice of contagion in monetary unions. Domino effects in EU Mediterranean countries: The case of Greece, Italy and Spain," wp.comunite 0098, Department of Communication, University of Teramo.
  • Handle: RePEc:ter:wpaper:0098
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    References listed on IDEAS

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    Cited by:

    1. Umberto Muratori, 2014. "Contagion in the Euro Area Sovereign Bond Market," Social Sciences, MDPI, vol. 4(1), pages 1-17, December.

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    Keywords

    Shadow exchange rate; currency crisis; monetary unions; contagion; Nash equilibria;
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