Small Countries in Monetary Unions: A Two-Tier Model / Jorge Braga de Macedo.

Format:

Book

Author/Creator:

Braga de Macedo, Jorge.

Contributor:

National Bureau of Economic Research.

Series:

Working Paper Series (National Bureau of Economic Research) no. w1634.

NBER working paper series no. w1634

Language:

English

Subjects (All):

Foreign exchange--Mathematical models.

Foreign exchange.

Monetary unions.

Physical Description:

1 online resource: illustrations (black and white);

Other Title:

Small Countries in Monetary Unions

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 1985.

Cambridge, Mass. : National Bureau of Economic Research, 1985.

Summary:

In a previous analysis of the West African Monetary Union, Macedo(1985a), size is taken to be a major structural characteristic of a country in the sense that large countries are not affected by disturbances originating in small countries but small countries are affected by large countries' domestic disturbances. In this paper, we generalize some of the results and present the structure of the model in moredetail. Using a four-country, two-tier macroeconomic model, it is shown that the pseudo-exchange rate union of the two small countries with the large partner has no effect on their real exchange rates but affects their price levels, whereas a full monetary union requires in principle a transfer from the large partner in the union. The allocation of this transfer between the two small countries by their common central bank will have real effects when the allocation rule differs from the steady-state monetary distribution.

Notes:

Print version record

June 1985.