Currency Areas and Voluntary Transfers

Timothy Worrall, Pierre Picard

Research output: Working paper

Abstract / Description of output

This paper discusses the relationship between the formation of a currency area and the use of voluntary fiscal transfers between countries. We show that there is a trade o between the benefits of flexible exchange rates and the additional risk sharing benefits of voluntary transfers that can be sustained in a currency area. We show that whether a currency area is beneficial or not will depend on the magnitude of economic parameter values. In particular, we show that in a simple two country model and for a plausible set of economic parameter values, a currency area is optimal.
Original languageEnglish
Number of pages57
Publication statusPublished - May 2015

Publication series

NameCentre for Research in Economics and Management
PublisherUniversity of Luxembourg
No.2015-12

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