The Announcement of Unconventional Monetary Policy and the Exit Risk in the European Monetary Union

Paolo Canofari, Alessandra Marcelletti, Giovanni Piersanti

Abstract


The introduction of unconventional monetary policy, pushing down the euro value, aims at strengthening the euro area, by increasing its competitiveness and boosting its economic growth. The goal of our paper is to offer a theoretical validation of these facts using a monetary union model in which a representative country and a common central bank strategically interact. The country can choose to stay in or opt out from the monetary union after a demand shock, while the central bank controls the exchange rate to preserve the stability of the union. Our main result is that the announcement of common exchange rate depreciation reduces the probability of a monetary union breakup.


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DOI: https://doi.org/10.5539/ijef.v10n4p95

Copyright (c) 2018 Paolo Canofari, Alessandra Marcelletti, Giovanni Piersanti

License URL: http://creativecommons.org/licenses/by/4.0

International Journal of Economics and Finance  ISSN  1916-971X (Print) ISSN  1916-9728 (Online)  Email: ijef@ccsenet.org

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