Leaving EMU: a real options perspective
Abstract:The real option implicit in a country's decision of whether to leave an existing monetary union when there is uncertainty over the future benefits of this move is examined. The theoretical model used is calibrated for the current Euro-12 area by proxying policymakers' inflation preferences with unemployment rates and debt-to-GDP ratios. A robust group of countries is observed that would choose to remain within EMU consisting of Belgium, Finland, Greece and Italy; France and Spain loosely also belong to this core. Only Luxembourg would robustly want to leave EMU; Ireland and The Netherlands, however, complement that core closely.
Document Type: Research Article
Affiliations: Department of Economics, University of Birmingham, Birmingham B15 2TT, UK, Email: email@example.com
Publication date: 2005-07-20