European monetary union or hard EMS?
AbstractThis paper contributes to the debate engendered by the Delors Report on the issue of European Monetary Union. It focuses on the options of a strengthened (or hard-) EMS, with a commitment to a fixed exchange rate relative to the Deutschmark, or a European central bank with full monetary union (EMU). Under hard-EMS, an anti-inflationary reputation is acquired by all as a result of Bundesbank credibility. As regards EMU, it is possible that too rapid a move through the latter stages of the Delors process will produce a central bank with little or no anti-inflation credibility. Here we make starkest assumption of no credibility under EMU, and compare it with hard-EMS for various supply and demand shocks using a two-bloc model, the latter exhibiting short-run wage/price stickiness but with long run natural rate properties. A non-EMS regime with floating exchange rates is used to examine the incentive compatibility of hard-EMS and EMU, with a cooperative reputational regime acting as a benchmark.
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Bibliographic InfoArticle provided by Elsevier in its journal European Economic Review.
Volume (Year): 36 (1992)
Issue (Month): 6 (August)
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- Bas van Aarle & Jacob Engwerda & Joseph Plasmans & Arie Weeren, 2000.
"Monetary and Fiscal Policy Design under EMU: A Dynamic Game Approach,"
CESifo Working Paper Series
262, CESifo Group Munich.
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- VAN AARLE, Bas & ENGWERDA, Jacob C. & PLASMANS, Joseph E.J. & WEEREN, Arie, 1999. "Monetary and fiscal pollcy design under EMU: a dynamic game approach," Working Papers 1999041, University of Antwerp, Faculty of Applied Economics.
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"Macroeconomic policy interaction under EMU: A dynamic game approach,"
Open Access publications from Tilburg University
urn:nbn:nl:ui:12-85061, Tilburg University.
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