The Sustainability of Monetary Unions - Can the Euro Survive?

27 Pages Posted: 27 Mar 2012 Last revised: 23 Jul 2012

Paolo Canofari

affiliation not provided to SSRN

Giancarlo Marini

University of Rome, Tor Vergata - Faculty of Economics

Giovanni Piersanti

University of Rome, Tor Vergata - Department of Economics and Law

Date Written: March 27, 2012

Abstract

This paper aims to propose a new measure of exchange market pressure for countries operating in hard peg regimes, such as currency unions, currency boards or full dollarization. We use a general model of currency crisis to derive a sustainability index based upon the relationship between the shadow exchange rate and the output gap required to maintain the currency peg. We apply the new index to European Union countries in order to assess the sustainability of the Euro.

Keywords: shadow exchange rate, currency crisis, exchange market pressure

JEL Classification: F3, F31, F41, G01

Suggested Citation

Canofari, Paolo and Marini, Giancarlo and Piersanti, Giovanni, The Sustainability of Monetary Unions - Can the Euro Survive? (March 27, 2012). CEIS Working Paper No. 226. Available at SSRN: https://ssrn.com/abstract=2029526 or http://dx.doi.org/10.2139/ssrn.2029526

Paolo Canofari

affiliation not provided to SSRN ( email )

Giancarlo Marini (Contact Author)

University of Rome, Tor Vergata - Faculty of Economics ( email )

Via Columbia n.2
Rome, 00100
Italy

Giovanni Piersanti

University of Rome, Tor Vergata - Department of Economics and Law ( email )

Via Columbia n.2
I-00133 Rome
Italy

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