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Central Banking, Monetary Theory and Practice

Essays in Honour of Charles Goodhart, Volume One

Edited by Paul Mizen

Celebrating the contribution that Charles Goodhart has made to monetary economics and policy, this unique compendium of original papers draws together a highly respected group of international academics, central bankers and financial market regulators covering a broad range of issues in modern monetary economics. Topics discussed include: central bank independence; credibility and transparency; the inflation forecast and the loss function; monetary policy experiences in the US and the UK; the implications of Goodhart’s Law; the benefits of single versus multiple currencies; and money, near monies and credit.
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Sudipto Bhattacharya


of ‘A cost of unified currency’ Sudipto Bhattacharya* It is always an enjoyable task to discuss a contribution by two colleagues as creative as John and Nobu, and this is especially so on the poignant occasion of a Festschrift in honour of Charles Goodhart, whose research has done so much to communicate European contributions on monetary and central banking issues to the world at large. This poignancy is only heightened by this paper, titled ‘A cost of unified currency’, being presented inside the auditorium of the Bank of England, around the time when the new euro currency is just coming into force across large swaths of the Continent and in Ireland. Both from a pragmatic as well as from a theoretical perspective, a rigorous scrutiny of seemingly facile arguments for the dominance of a unified medium of exchange should be welcomed. Modern models of trading processes with frictions ought to be subjected to the same kinds of robustness tests vis-à-vis their efficiency (and other properties) as was done for the classical Walrasian (and then Arrow–Debreu) models with incomplete markets, by eminent economists such as Oliver Hart (1975). In particular, it is imperative that the functioning of such trading processes be analysed under some degree of ex ante heterogeneity among agents in their tastes and/or endowments; in their chapter, Nobu Kiyotaki and John Moore have examined just such a scenario. In the Kiyotaki–Moore (hereafter KM) model, agents trade with fiat money in the absence...

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