Abstract

In the paper we show that common currency areas tend to amplify the inefficiencies associated with lack of credibility of monetary policy. Lack of commitment in redistribution of seigniorage leads to excessive inflation and suboptimal taxation in the Monetary Union. Lack of commitment to inflation creates multiple inefficient equilibria that do not exist in a regime of national monetary independence.

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Additional Information

ISSN
1538-4616
Print ISSN
0022-2879
Pages
pp. 1034-1046
Launched on MUSE
2002-11-01
Open Access
No
Archive Status
Archived 2007
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