Inflation Aversion and Exit Probabilities in the Monetary Unions

Inflation Aversion and Exit Probabilities in the Monetary Unions The paper considers a monetary union composed of two representative countries characterized by different inflation aversions. The model derives Nash equilibria after a country-specific shock in which the countries have a costly option to abandon the common currency. The main results are that the higher the inflation aversion of the country affected by the shock, the lower its exit probability. The higher the inflation aversion in both countries, the lower the probability that the country not directly hit also abandons the monetary union (contagion). http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png International Advances in Economic Research Springer Journals

Inflation Aversion and Exit Probabilities in the Monetary Unions

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Publisher
Springer US
Copyright
Copyright © 2018 by International Atlantic Economic Society
Subject
Economics; Economics, general; Macroeconomics/Monetary Economics//Financial Economics; International Economics; Microeconomics; Economic Growth
ISSN
1083-0898
eISSN
1573-966X
D.O.I.
10.1007/s11294-018-9664-1
Publisher site
See Article on Publisher Site

Abstract

The paper considers a monetary union composed of two representative countries characterized by different inflation aversions. The model derives Nash equilibria after a country-specific shock in which the countries have a costly option to abandon the common currency. The main results are that the higher the inflation aversion of the country affected by the shock, the lower its exit probability. The higher the inflation aversion in both countries, the lower the probability that the country not directly hit also abandons the monetary union (contagion).

Journal

International Advances in Economic ResearchSpringer Journals

Published: Feb 1, 2018

References

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