Monetary Union, Banks and Financial Integration
Breton, Régis; Rojas Breu, Mariana; Bignon, Vincent (2013-02), Monetary Union, Banks and Financial Integration, 62nd annual meeting of the AFSE, 2013-06, Marseille, France
TypeCommunication / Conférence
Conference title62nd annual meeting of the AFSE
MetadataShow full item record
Rojas Breu, Mariana
Laboratoire d'Economie de Dauphine [LEDa]
Abstract (EN)This paper analyzes a two-country model of money and banks to examine the conditions under which the creation of a monetary union between two countries is optimal. Is is shown that if agents resort to banks to adjust their monetary holdings through borrowing and if nobody can force them to repay their debts, it may be optimal for both countries to set up two different currencies, along with strictly positive conversion costs. A necessary condition for this is that credit market integration is limited. This arises even though both countries are perfectly identical.
Subjects / KeywordsMonetary union; credit; default; limited commitment
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