Speculative attacks on a monetary union?

✍ Scribed by Michael Dooley

• Publisher: John Wiley and Sons
• Year: 1998
• Tongue: English
• Weight: 109 KB
• Volume: 3
• Category: Article
• ISSN: 1076-9307
• DOI: 10.1002/(sici)1099-1158(199801)3:1<21::aid-ijfe64>3.0.co;2-9

✦ Synopsis

This paper develops the idea that full monetary union eliminates the channels through which private speculative attacks have typically ended fixed exchange rate regimes. Profitable speculation against the regime would require government actions following a regime change that are prohibitively costly to the government. The inherent stability of a full monetary union is not a feature of transitional arrangements as currently envisioned for the EMU. A relatively simple but unconventional policy initiative of 'euroization' can considerably reduce the vulnerability of transitional arrangements to speculative attack.