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| Author: | Cooper, R. Kemp, H. |
| Title: | Commitment and the adoption of a common currency |
| Journal: | International Economic Review
2003 : FEB, VOL. 44:1, p. 119-142 |
| Index terms: | Currency Currency markets Monetary theory Pareto law |
| Language: | eng |
| Abstract: | In contrast to Mundell's inquiry on the optimality of currency areas, the authors try to understand under what circumstances a Pareto-dominant monetary union will be established. Using a multicountry overlapping generations model, the authors 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. The gains from monetary union are most likely to be lost without collective effort. |
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