JOINING EUROPEAN MONETARY UNION: A REAL OPTIONS PERSPECTIVE

In: Scottish journal of political economy: the journal of the Scottish Economic Society, Band 54, Heft 1, S. 105-115

Abstract

ABSTRACTWe examine the real option implicit in countries' decisions on whether to join a monetary union when future benefits of this move are uncertain. Our theoretical model is calibrated for the current Euro‐12 area and EU‐15 outs, proxying policymakers' inflation preferences with unemployment rates, debt‐to‐GDP and potential‐to‐actual‐GDP ratios. The Euro‐12 area is generally ready or close to wanting to expand, whereas the EU‐15 outs are unready to make that move at present and have widely varying probabilities of wanting to do so in the future, depending on the measure used.