Konferenzbeitrag

The Inherent Benefit of Monetary Unions

The desirability of flexible exchange rates is a central tenet in international macroeconomics. We show that, with forward-looking staggered pricing, this result crucially depends on the monetary authority's ability to commit. Under full commitment, flexible exchange rates generally dominate a monetary union (or fixed exchange rate) regime. Under discretion, this result is overturned: a monetary union dominates flexible exchange rates. By fixing the nominal exchange rate, a benevolent monetary authority finds it welfare improving to tradeoff efficiency in the adjustment of the terms of trade in order to improve on its ability to manage private sector's expectations. Thus, fixed exchange rate-induced inertia in the terms of trade is a cost under commitment, whereas it is a benefit under discretion, for it acts like a commitment device.

Language
Englisch

Bibliographic citation
Series: Beiträge zur Jahrestagung des Vereins für Socialpolitik 2016: Demographischer Wandel - Session: Monetary Integration ; No. C17-V3

Classification
Wirtschaft
International Monetary Arrangements and Institutions
Open Economy Macroeconomics
Monetary Policy

Event
Geistige Schöpfung
(who)
Groll, Dominik
Monacelli, Tommaso
Event
Veröffentlichung
(who)
ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften, Leibniz-Informationszentrum Wirtschaft
(where)
Kiel und Hamburg
(when)
2016

Handle
Last update
10.03.2025, 11:44 AM CET

Data provider

This object is provided by:
ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften - Leibniz-Informationszentrum Wirtschaft. If you have any questions about the object, please contact the data provider.

Object type

  • Konferenzbeitrag

Associated

  • Groll, Dominik
  • Monacelli, Tommaso
  • ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften, Leibniz-Informationszentrum Wirtschaft

Time of origin

  • 2016

Other Objects (12)