A Note on Time Inconsistency and Endogenous Exits from a Currency Union

Games

Yuta Saito¹ 

[1] Faculty of Economics, Kobe International University, 9-1-6 Koyochonaka, Higashinada-ku, Kobe 658-0032, Japan;

关键词: inflation bias;    monetary union;    committee;    weighted majority voting;   

DOI  :  10.3390/g13020021

来源: DOAJ

【 摘 要 】

This paper investigates the effects of members’ exits from a currency union on the credibility of the common currency. In our currency union model, the inflation rate of the common currency is determined by majority voting among N member countries that are heterogeneous with respect to their output shocks. Once an inflation rate of the common currency has been selected, each member decides whether to remain in the currency union or not. If a member decides to exit, it has to pay a fixed social cost and individually chooses the inflation rate of its currency. Unlike previous research on this topic, we focus on the possibility of achieving an optimal outcome, which generates no inflation bias, when more than one member is expected to leave the currency union. We show that the optimal outcome can only be achieved if no members leave the currency union.

【 授权许可】

Unknown