Deciding on Monetary Integration: An Operational Approach

34 Pages Posted: 15 Oct 2007

See all articles by Andrew Powell

Andrew Powell

Inter-American Development Bank (IDB); Universidad Torcuato Di Tella - School of Business; Harvard University - Center for International Development (CID)

Federico Sturzenegger

Universidad Torcuato Di Tella; Harvard University - Harvard Kennedy School (HKS); National Bureau of Economic Research (NBER)

Date Written: September 2007

Abstract

We develop a simple, n-country model to consider the costs and benefits of joining a monetary union. Our factor-OCA framework encompasses different approaches and allows us to consider the optimal composition of a monetary union for all the potential members. We illustrate the model in practice with various simulations and we develop two empirical applications based on expanding EMU and on whether there would be a benefit to deepening Nafta to be a monetary union. While some commentators have called for a one-world currency, we find full monetary integration has costs for some countries and benefits for others, perhaps explaining why this remains a controversial issue.

Keywords: Economics - International Economics

Suggested Citation

Powell, Andrew P. and Powell, Andrew P. and Sturzenegger, Federico, Deciding on Monetary Integration: An Operational Approach (September 2007). KSG Working Paper No. RWP07-041, Available at SSRN: https://ssrn.com/abstract=1019014 or http://dx.doi.org/10.2139/ssrn.1019014

Andrew P. Powell

Universidad Torcuato Di Tella - School of Business ( email )

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Inter-American Development Bank (IDB) ( email )

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Harvard University - Center for International Development (CID) ( email )

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Federico Sturzenegger (Contact Author)

Universidad Torcuato Di Tella ( email )

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Argentina

Harvard University - Harvard Kennedy School (HKS) ( email )

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National Bureau of Economic Research (NBER)

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