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Monetary union or else?

Haller, H. and Ioannides, Y. (1995) Monetary union or else? CEPDP, 207. Centre for Economic Performance, London School of Economics and Political Science, London, UK.

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Identification Number: 207

Abstract

We analyze a strategic game where in a first step, a country can adopt another country''s currency. In a second step, thee two countries commit resources to economic integration. A common currency reduces the overall resource costs of economic integration, but imposes an idiosyncratic adjustment cost on the country changing its currency. A country''s currency choice depends on how, favorably or adversely, it expects the other country to respond to a currency change. We find that economic integration without a common currency is a subgame perfect equilibrium outcome. Economic integration with a common currency is another, superior subgame perfect equilibrium outcome.

Item Type: Monograph (Discussion Paper)
Official URL: http://cep.lse.ac.uk
Additional Information: © 1995 the authors
Subjects: H Social Sciences > HG Finance
Sets: Collections > Economists Online
Research centres and groups > Centre for Economic Performance (CEP)
Date Deposited: 13 Aug 2008 14:35
Last Modified: 01 Oct 2010 09:16
URI: http://eprints.lse.ac.uk/id/eprint/20757

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