Monetary Union Viability: A Criterion Proposal

Abstract

We propose a model that represents the dynamic behaviour of a monetary union comprising two countries whose natural interest rates are initially unequal. This initial disparity and the subsequent application of a common monetary policy generate different national inflation rates and lead to losses of competitiveness, foreign deficits, and the indebtedness of one country with respect to the other. We propose as a viability criterion for the modelled monetary union a combination of non‐explosive foreign debt and the ability of the central bank to neutralize the contracting effects of taking on additional debt to avoid falling into a liquidity trap.

Long‐run macro drivers of citizens’ mood in European institutions: An empirical assessment

“…Some others in fear of greater inflation opposed the ECB policy strategy accused of being too easy toward peripheral countries. The prevalence of the approach based on the compliance to the existing rules caused an institutional stalemate that hindered the objective of a wider and deeper integration (Alonso & Guzmán, ; Armigeon, Guthmann, & Weisstanner, ).…”