Commitment and the adoption of a common currency

Russell Cooper, Hubert Kempf

Research output: Contribution to journalArticlepeer-review

12 Scopus citations

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.

Original languageEnglish (US)
Pages (from-to)119-142
Number of pages24
JournalInternational Economic Review
Volume44
Issue number1
DOIs
StatePublished - Feb 1 2003

All Science Journal Classification (ASJC) codes

  • Economics and Econometrics

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