Monetary Union with a Single Currency and Imperfect Credit Market Integration

Arbeitspapier

This paper shows that currency arrangements impact on credit available through default incentives. To this end we build a symmetric two-country model with money and imperfect credit market integration. With the Euro Area context in mind, we capture differences in credit market integration by variations in the cost for banks to grant credit for cross-border purchases. We show that for a high enough level of this cost, currency integration may magnify default incentives, leading to more stringent credit rationing and lower welfare than in a regime of two currencies. The integration of credit markets restores the optimality of the currency union.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: FIW Working Paper ; No. 153

Classification and Topics

• Classification: Wirtschaft ; Monetary Systems; Standards; Regimes; Government and the Monetary System; Payment Systems ; Monetary Policy, Central Banking, and the Supply of Money and Credit: General ; Banks; Depository Institutions; Micro Finance Institutions; Mortgages
• Subject: banks ; currency union ; monetary union ; credit ; default

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Bignon, Vincent ; Breton, Régis ; Breu, Mariana Rojas
• Event: Veröffentlichung
• (who): FIW - Research Centre International Economics
• (where): Vienna
• (when): 2015

Further information

• Handle: http://hdl.handle.net/10419/121154
• Last update: 10.03.2025, 11:41 AM CET