BARGAINING A MONETARY UNION

Two governments bargain over the benefits of a monetary union in a cash-in-advance world. A novel feature of the model is that, because households trade every period, market behavior affects and is affected by the government negotiations. As a result, in addition to objective costs of delay, market expectations about the bargaining outcome emerge as crucial determinants of a monetary union. There is a continuum of bargaining outcomes indexed by market expectations. Some outcomes imply that the monetary union is delayed for an arbitrary number of periods. Journal of Economic Literature Classification Numbers: F4, C7. (C) 1995 Academic Press, Inc.