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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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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:
Additional Information: © 1995 the authors
Divisions: Centre for Economic Performance
Subjects: H Social Sciences > HG Finance
Date Deposited: 13 Aug 2008 14:35
Last Modified: 26 Apr 2021 11:45

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