Discussion paper

DP1561 Monetary Integration and Economic Convergence

Recent research in contract theory views ownership as a substitute for complete contracts. In this paper this approach is applied to monetary integration. Countries face a coordination problem when conducting monetary policy: negative spillovers ensure uncoordinated policy generates too high inflation. Ex ante, policy-makers can undertake politically costly economic reform. This has a positive spillover because it improves the outcome of the monetary policy game. Ex post, contracting over policy may be possible, however, it is supposed that ex-ante contracting over reform and monetary policy, is not. This paper analyses when monetary union is a good substitute for this inability to commit.

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Citation

Sibert, A (1997), ‘DP1561 Monetary Integration and Economic Convergence‘, CEPR Discussion Paper No. 1561. CEPR Press, Paris & London. https://cepr.org/publications/dp1561