The Latin Monetary Union: Some Evidence on Europe's Failed Common Currency

Review of Development Finance, Vol. 1, pp. 131-149, 2011

53 Pages Posted: 5 Aug 2003 Last revised: 25 May 2011

See all articles by Kee-Hong Bae

Kee-Hong Bae

York University - Schulich School of Business

Warren Bailey

Cornell University; Fudan University - Fanhai International School of Finance and China Institute of Economics and Finance

Date Written: July 1, 2003

Abstract

The Latin Monetary Union was initiated in 1865 by France, Belgium, Italy, and Switzerland. We find that LMU membership or adoption of a gold standard is frequently associated with lower volatility of private bill yields, bond yields, inflation, and deviations from Purchasing Power Parity. However, neither standard induces convergence with LMU leader France or gold standard leader Great Britain. Bond yield spreads indicate that adoption of the gold standard is more credible than membership of the LMU. Italy is an outlier, perhaps due to errant fiscal and monetary policies. A comparison to the modern EMS/EMU confirms that the LMU was a weaker and less credible currency arrangement.

Keywords: Currency union, European Monetary Union, EMU, Latin Monetary Union

JEL Classification: E5, F3, F4

Suggested Citation

Bae, Kee-Hong and Bailey, Warren B., The Latin Monetary Union: Some Evidence on Europe's Failed Common Currency (July 1, 2003). Review of Development Finance, Vol. 1, pp. 131-149, 2011. Available at SSRN: https://ssrn.com/abstract=422280 or http://dx.doi.org/10.2139/ssrn.422280

Kee-Hong Bae

York University - Schulich School of Business ( email )

4700 Keele Street
Toronto, Ontario M3J 1P3
Canada
416-736-2100 ext) 20248 (Phone)
416-736-5687 (Fax)

Warren B. Bailey (Contact Author)

Cornell University ( email )

S. C. Johnson Graduate School of Management
387 Sage Hall
Ithaca, NY 14853-6201
United States
607-255-4627 (Phone)
607-254-4590 (Fax)

HOME PAGE: http://courses.cit.cornell.edu/wbb1/

Fudan University - Fanhai International School of Finance and China Institute of Economics and Finance ( email )

China

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