A Theory of monetary union and financial integration
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- dc.contributor.author Fornaro, Luca
- dc.contributor.other Universitat Pompeu Fabra. Departament d'Economia i Empresa
- dc.date.accessioned 2024-11-14T10:09:43Z
- dc.date.available 2024-11-14T10:09:43Z
- dc.date.issued 2019-12-01
- dc.date.modified 2024-11-14T10:06:34Z
- dc.description.abstract Since the creation of the euro, capital flows among member countries have been large and volatile. Motivated by this fact, I provide a theory connecting the exchange rate regime to financial integration. The key feature of the model is that monetary policy affects the value of collateral that creditors seize upon default. Under flexible exchange rates, national governments can expropriate foreign creditors by depreciating the exchange rate, which induces investors to impose tight constraints on international borrowing. Creating a monetary union, by eliminating this source of currency risk, increases financial integration among member countries. This process, however, does not necessarily lead to higher welfare. The reason is that a high degree of capital mobility can generate multiple equilibria, with bad equilibria characterized by inefficient capital flights. Capital controls or fiscal transfers can eliminate bad equilibria, but their implementation requires international cooperation.
- dc.format.mimetype application/pdf*
- dc.identifier https://econ-papers.upf.edu/ca/paper.php?id=1677
- dc.identifier.citation The Review of Economic Studies, 89 (4), 2022, 1911-1947
- dc.identifier.uri http://hdl.handle.net/10230/44712
- dc.language.iso eng
- dc.relation.ispartofseries Economics and Business Working Papers Series; 1677
- dc.rights L'accés als continguts d'aquest document queda condicionat a l'acceptació de les condicions d'ús establertes per la següent llicència Creative Commons
- dc.rights.accessRights info:eu-repo/semantics/openAccess
- dc.rights.uri http://creativecommons.org/licenses/by-nc-nd/3.0/es/
- dc.subject.keyword monetary union
- dc.subject.keyword international financial integration
- dc.subject.keyword exchange rates
- dc.subject.keyword optimal currency area
- dc.subject.keyword capital flights
- dc.subject.keyword euro area.
- dc.subject.keyword Macroeconomics and International Economics
- dc.title A Theory of monetary union and financial integration
- dc.title.alternative
- dc.type info:eu-repo/semantics/workingPaper