01822cam a22002417 4500001000600000003000500006005001700011008004100028100002100069245009000090260006600180490004100246500001900287520090500306530006101211538007201272538003601344700001901380710004201399830007601441856003701517856002601554w6791NBER20140713172152.0140713s1998 mau||||fs|||| 000 0 eng d1 aCooper, Russell.10aEstablishing a Monetary Unionh[electronic resource] /cRussell Cooper, Hubert Kempf. aCambridge, Mass.bNational Bureau of Economic Researchc1998.1 aNBER working paper seriesvno. w6791 aNovember 1998.3 aThis paper explores the gains to monetary union. We consider a two-country overlapping generations model. Agents work when young and have random tastes over the composition (domestic vs. foreign goods) of old age consumption. In equilibrium, governments require that local currency be used for transactions as a means of creating a base for seignorage. Thus agents hold multiple currencies to deal with uncertainty in their optimal consumption bundles. We argue that this equilibrium is Pareto dominated by a monetary union, in which there is a single currency and a strong central bank that optimally chooses zero inflation. As suggested by the European Commission's 1990 report, monetary union reduces the inefficiencies created by multiple currencies and leads to price stability. Finally, we argue this Pareto superior outcome cannot be achieved without cooperation of the two governments. aHardcopy version available to institutional subscribers. aSystem requirements: Adobe [Acrobat] Reader required for PDF files. aMode of access: World Wide Web.1 aKempf, Hubert.2 aNational Bureau of Economic Research. 0aWorking Paper Series (National Bureau of Economic Research)vno. w6791.4 uhttp://www.nber.org/papers/w6791 uurn:doi:10.3386/w6791