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Leaving EMU: a real options perspective

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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

DOI: https://doi.org/10.1080/00036840500166308

Affiliations: Department of Economics, University of Birmingham, Birmingham B15 2TT, UK, Email: f.strobel@bham.ac.uk

Publication date: 2005-07-20

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