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Nash Bargaining, Money Creation, and Currency Union

Author

Listed:
  • Stephane Auray

    (GREMARS-EQUIPPE, Universite Lille III
    Universite de Sherbrooke, GREDI, Faculte d¡¯administration 2500 Boulevard Universite)

  • Aurelien Eyquem

    (CREM CNRS, Universite de Rennes)

  • Gerard Hamiache

    (GREMARS-EQUIPPE, Universite de Lille III, Domaine universitaire du Pont de Bois)

  • Jean-Christophe Poutineau

    (CREM CNRS, Universite de Rennes
    Ecole Normale Superieure de Cachan)

Abstract

This paper is an attempt to combine global macroeconomic objectives with an explicit analysis of resource allocation efficiency. It determines how money creation must be shared between Monetary Union members, given national particularities in the monetary transmission mechanisms. In a two-country "New Open Macroeconomics" model, we outline the optimality of an unequal treatment of nations. To this end, the original Nash bargaining concept is modified to allow a differentiated treatment of countries. By favoring the more flexible country and relying on international money flows to provide liquidity to the more rigid nation, all Union members register efficiency gains which compensate an unfavorable intertemporal inflation activity arbitrage in the Union Central Bank objective.

Suggested Citation

  • Stephane Auray & Aurelien Eyquem & Gerard Hamiache & Jean-Christophe Poutineau, 2008. "Nash Bargaining, Money Creation, and Currency Union," Annals of Economics and Finance, Society for AEF, vol. 9(2), pages 253-292, November.
    • Handle: RePEc:cuf:journl:y:2008:v:9:i:2:p:253-292
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Monetary union; Nash bargaining; New open macroeconomics;
    All these keywords.

    JEL classification:

    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games

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