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Monetary Integration, Uncertainty and the Role of Monetary Policy

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  • Graham M. Voss

Abstract

This research considers the positive theory of monetary integration in a general equilibrium monetary model of the world economy. The analysis demonstrates that, in the face of uncertainty and incomplete asset markets, participation in a monetary union may be welfare improving since it facilitates state-dependent resource transfers between regional economies. Such resource transfers are used to optimally reduce the variance of consumption for a risk averse agents. This potential for improving welfare depends not only on the agents' risk aversion but on the interrelationship of the regional economies: contrary to Mundell (1961), economically diverse regions may be well suited to a common currency.

Suggested Citation

  • Graham M. Voss, 1991. "Monetary Integration, Uncertainty and the Role of Monetary Policy," Working Paper 813, Economics Department, Queen's University.
    • Handle: RePEc:qed:wpaper:813
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    File URL: http://qed.econ.queensu.ca/working_papers/papers/qed_wp_813.pdf
    File Function: First version 1991
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    Cited by:

    1. Philippe Bacchetta & Eric van Wincoop, 1998. "Does Exchange Rate Stability Increase Trade and Capital Flows?," Working Papers 98.04, Swiss National Bank, Study Center Gerzensee.
    2. Devereux Michael B & Voss Graham M, 2006. "Exchange Rate Regimes, Specialization and Trade Volume," The B.E. Journal of Macroeconomics, De Gruyter, vol. 6(2), pages 1-36, October.

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