Monetary integration and economic reform

Recent research in contract theory clews ownership as a substitute for complete contracts. Here, this approach is applied to monetary integration. Countries face a coordination problem conducting monetary policy. Negative spillovers ensure uncoordinated policy generates too high inflation. Ex ante, policy makers can undertake politically costly economic reform. This has a positive spillover because it improves the outcome of the monetary policy game. Err-post contracting over policy may be possible, but it supposed that ex-ante contracting over reform and monetary policy is not. This paper analyses when monetary union is a good substitute for this inability to commit.