A Note on Time Inconsistency and Endogenous Exits from a Currency Union
This paper investigates the effects of members’ exits from a currency union on the credibility of the common currency. In our currency union model, the inflation rate of the common currency is determined by majority voting among <i>N</i> member countries that are heterogeneous with respe...
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| Format: | Article |
| Language: | English |
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MDPI AG
2022-02-01
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| Series: | Games |
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| Online Access: | https://www.mdpi.com/2073-4336/13/2/21 |
| _version_ | 1827628784337027072 |
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| author | Yuta Saito |
| author_facet | Yuta Saito |
| author_sort | Yuta Saito |
| collection | DOAJ |
| description | This paper investigates the effects of members’ exits from a currency union on the credibility of the common currency. In our currency union model, the inflation rate of the common currency is determined by majority voting among <i>N</i> member countries that are heterogeneous with respect to their output shocks. Once an inflation rate of the common currency has been selected, each member decides whether to remain in the currency union or not. If a member decides to exit, it has to pay a fixed social cost and individually chooses the inflation rate of its currency. Unlike previous research on this topic, we focus on the possibility of achieving an optimal outcome, which generates no inflation bias, when more than one member is expected to leave the currency union. We show that the optimal outcome can only be achieved if no members leave the currency union. |
| first_indexed | 2024-03-09T13:39:37Z |
| format | Article |
| id | doaj.art-aa4222fb64aa4eb0a697d6ffa8c1a768 |
| institution | Directory Open Access Journal |
| issn | 2073-4336 |
| language | English |
| last_indexed | 2024-03-09T13:39:37Z |
| publishDate | 2022-02-01 |
| publisher | MDPI AG |
| record_format | Article |
| series | Games |
| spelling | doaj.art-aa4222fb64aa4eb0a697d6ffa8c1a7682023-11-30T21:08:45ZengMDPI AGGames2073-43362022-02-011322110.3390/g13020021A Note on Time Inconsistency and Endogenous Exits from a Currency UnionYuta Saito0Faculty of Economics, Kobe International University, 9-1-6 Koyochonaka, Higashinada-ku, Kobe 658-0032, JapanThis paper investigates the effects of members’ exits from a currency union on the credibility of the common currency. In our currency union model, the inflation rate of the common currency is determined by majority voting among <i>N</i> member countries that are heterogeneous with respect to their output shocks. Once an inflation rate of the common currency has been selected, each member decides whether to remain in the currency union or not. If a member decides to exit, it has to pay a fixed social cost and individually chooses the inflation rate of its currency. Unlike previous research on this topic, we focus on the possibility of achieving an optimal outcome, which generates no inflation bias, when more than one member is expected to leave the currency union. We show that the optimal outcome can only be achieved if no members leave the currency union.https://www.mdpi.com/2073-4336/13/2/21inflation biasmonetary unioncommitteeweighted majority voting |
| spellingShingle | Yuta Saito A Note on Time Inconsistency and Endogenous Exits from a Currency Union Games inflation bias monetary union committee weighted majority voting |
| title | A Note on Time Inconsistency and Endogenous Exits from a Currency Union |
| title_full | A Note on Time Inconsistency and Endogenous Exits from a Currency Union |
| title_fullStr | A Note on Time Inconsistency and Endogenous Exits from a Currency Union |
| title_full_unstemmed | A Note on Time Inconsistency and Endogenous Exits from a Currency Union |
| title_short | A Note on Time Inconsistency and Endogenous Exits from a Currency Union |
| title_sort | note on time inconsistency and endogenous exits from a currency union |
| topic | inflation bias monetary union committee weighted majority voting |
| url | https://www.mdpi.com/2073-4336/13/2/21 |
| work_keys_str_mv | AT yutasaito anoteontimeinconsistencyandendogenousexitsfromacurrencyunion AT yutasaito noteontimeinconsistencyandendogenousexitsfromacurrencyunion |