The Latin Monetary Union : some evidence on Europe's failed common currency

The Latin Monetary Union was initiated in 1865 by France, Belgium, Italy, and Switzerland. We find that LMU membership or adoption of a gold standard is frequently associated with lower volatility of private bill yields, bond yields, inflation, and deviations from Purchasing Power Parity. However, n...

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Bibliographic Details
Published inReview of development finance Vol. 1; no. 2; pp. 131 - 149
Main Authors Baea, Kee-Hong, Bailey, Warren
Format Journal Article
LanguageEnglish
Published Amsterdam AfricaGrowth Institute 01.04.2011
Subjects
Convergence
Currency
Currency union
EMU
European Monetary Union
Inflation
Latin Monetary Union
Membership
Monetary unions
Purchasing power parity
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Summary:The Latin Monetary Union was initiated in 1865 by France, Belgium, Italy, and Switzerland. We find that LMU membership or adoption of a gold standard is frequently associated with lower volatility of private bill yields, bond yields, inflation, and deviations from Purchasing Power Parity. However, neither standard induces convergence with LMU leader France or gold standard leader Great Britain. Bond yield spreads indicate that adoption of the gold standard is more credible than membership of the LMU. Italy is an outlier, perhaps due to errant fiscal and monetary policies. A comparison to data from the modern EMS/EMU confirms that the LMU was a weaker and less credible currency arrangement.
ISSN:1879-9337
1879-9337
DOI:10.1016/j.rdf.2011.03.001