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Faculty Research Working Paper Series
Federico Sturzenegger
Lecturer in Public Affairs
Deciding on Monetary Integration: An Operational Approach.
Powell, Andrew, and Federico Sturzenegger. "Deciding on Monetary Integration: An Operational Approach." KSG Faculty Research Working Paper Series RWP07-041, 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.
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