Macroeconomic Coordination and Monetary Unions in a N-country World: Do all Roads Lead to Rome?
In Europe, twelve countries have joined a currency union but four have stayed out. The EU enlargement process implies a large set of potential EMU entrants. In Latin America, two countries have recently dollarized and regional currencies have also been a recurring theme. We develop a theoretical model in which countries are exposed to real and monetary shocks of both a systemic and individual nature. The model suggests when countries should float, form a CU or fix to an anchor as a function of their sensitivity to systemic shocks and the size of individual shocks. In an empirical analysis we consider a set of countries in Latin America. We find that what is beneficial for a given country depends on the actions of others. Integration may then be path dependent, and all roads may not lead to Rome.
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- Charles R. Bean, 1992.
"Economic and Monetary Union in Europe,"
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- Bayoumi, Tamim, 1994. "A Formal Model of Optimum Currency Areas," CEPR Discussion Papers 968, C.E.P.R. Discussion Papers.
- 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.
- Bayoumi, Tamim & Eichengreen, Barry, 1994. "Monetary and exchange rate arrangements for NAFTA," Journal of Development Economics, Elsevier, vol. 43(1), pages 125-165, February. Full references (including those not matched with items on IDEAS)
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