Journal of Monetary Economics 2020 DOI: 10.1016/j.jmoneco.2019.01.023 View full text
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V.V. Chari, Alessandro Dovis, Patrick J. Kehoe

Abstract: The traditional Mundellian criterion, which implicitly assumes commitment to monetary policy, is that countries with similar shocks should form unions. Without such commitment a new criterion emerges: countries with dissimilar temptation shocks, namely those that exacerbate time inconsistency problems, should form unions. Critical to this new criterion is the idea that monetary policy is benevolent in that it takes into account the interests of all the countries in the union. When countries have dissimilar tem…

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