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The Instability of Halfway Measures in the Transition to a Common Currency

  • Clas Wihlborg
  • Thomas Willett

Abstract

Political interest in the creation of a European Monetary Union has grown rapidly over the last several years. By the traditional economic criteria of the theory of optimum currency areas such a movement does not appear well founded (see, for example, Thygesen, 1987 and Wihlborg and Willett, 1991).1 While increasing economic and financial integration strengthen the case for a union, factor mobility is still far less than would be required for an optimum currency area. Given the broader political considerations motivating much of the push for monetary union, economic analysis seems unlikely to slow this movement significantly. It may still play a useful role in evaluating the advantages and disadvantages of alternative transitional stategies for the movement toward full monetary union; however, such economic analysis must go beyond the traditional optimal policy approach and focus upon the interactions of economic considerations and political incentives within a broader political economy framework.

Keywords

Exchange Rate Monetary Policy Central Bank Monetary Union Capital Mobility 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.

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Copyright information

© Silvio Borner and Herbert Grubel 1992

Authors and Affiliations

  • Clas Wihlborg
  • Thomas Willett

There are no affiliations available

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