Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/121154
Authors: 
Bignon, Vincent
Breton, Régis
Breu, Mariana Rojas
Year of Publication: 
2015
Series/Report no.: 
FIW Working Paper 153
Abstract: 
This paper shows that currency arrangements impact on credit available through default incentives. To this end we build a symmetric two-country model with money and imperfect credit market integration. With the Euro Area context in mind, we capture differences in credit market integration by variations in the cost for banks to grant credit for cross-border purchases. We show that for a high enough level of this cost, currency integration may magnify default incentives, leading to more stringent credit rationing and lower welfare than in a regime of two currencies. The integration of credit markets restores the optimality of the currency union.
Subjects: 
banks
currency union
monetary union
credit
default
JEL: 
E42
E50
F3
G21
Document Type: 
Working Paper

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