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When a Monetary Union Fails: A Parable

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  • Guillaume Cheikbossian

Abstract

The political imperative is an important driving force behind the dissolution of monetary unions. But economic factors are also likely to play an important role. Using a two-country model of government finance in a common currency area, we suggest that when countries are very heterogeneous in terms of financing requirements or in terms of tolerance for inflation, one of them will benefit from achieving monetary independence. The results are contrasted to the breakup of the Austro-Hungarian crown area in the 1920s and especially to that of the ruble area in the 1990s. Copyright Kluwer Academic Publishers 2001

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  • Guillaume Cheikbossian, 2001. "When a Monetary Union Fails: A Parable," Open Economies Review, Springer, vol. 12(2), pages 181-195, April.
    • Handle: RePEc:kap:openec:v:12:y:2001:i:2:p:181-195
    DOI: 10.1023/A:1008384413848
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    References listed on IDEAS

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    Cited by:

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    2. Durevall, Dick, 2011. "East African Community: Pre-conditions for an Effective Monetary Union," Working Papers in Economics 520, University of Gothenburg, Department of Economics.

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