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| Author: | Bottazzi, L. Manasse, P. |
| Title: | Credibility and Seignoirage in a Common Currency Area |
| Journal: | Journal of Money, Credit and Banking
2002 : NOV, VOL. 34:4, p. 1034-1046 |
| Index terms: | SEIGNIORAGE CURRENCY MONETARY POLICY |
| Language: | eng |
| Abstract: | The authors study the implications of establishing a common currency area (CCA) for conduct of monetary policy. They argue that CCA may aggravate the inefficiencies associated with lack of commitment. In the paper the authors show that common currency areas tend to amplify the inefficiencies associated with lack of credibility of monetary policy. Lack of commitment in redistribution of seignoirage leads to excessive inflation and suboptimal taxation in the Monetary Union. Lack of commitment to inflation creates multiple inefficient equilibria that do not exist in a regime of national monetary independence. |
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