Commitment and the adoption of a common currency*
Year: 2003
Type: article
Abstract: In contrast to Mundell's inquiry on the optimality of currency areas, this article aims to understand under what circumstances a Pareto‐dominant monetary union will be established. Using a multicountry overlapping generations model, we highlight gains from monetary union arising from reduced transactions costs and lower inflation. Despite these gains, countries acting independently will impose barriers to exchange through local currency restrictions, thereby creating transactions costs and providing an incentive for inflation. Therefore, the gains from monetary union are most likely to be lost without collective effort.
Source: International Economic Review
Authors: Russell Cooper, Hubert Kempf
Language: English
Subfield: Finance
Domain: Social Sciences
Open Access status: green
OpenAlex ID: W2097517031