Currency Unions, the Phillips Curve, and Stabilization Policy: Some Suggestions for Europe
AbstractThis paper examines the implications of a currency union for monetary policy. The formation of a currency union worsens the inflation-unemployment tradeoff, so that leaving the inflation target unchanged at its pre-currency union level generates increased unemployment. Geographically based fiscal automatic stabilizers can improve the inflation-unemployment trade-off, which has bearings on the Euro areaâ€™s Stability and Growth Pact. Financial intermediary balance sheet regulation based on asset-based reserve requirements (ABRR) can provide additional country-specific policy instruments. ABRR alleviate the targets and instruments problem afflicting the monetary authority in a currency union context. This is important for the European Central Bank, which is trying to manage divergent country growth rates with a single interest rate instrument.
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Bibliographic InfoArticle provided by Edward Elgar in its journal Intervention. European Journal of Economics and Economic Policies (subtitle initially: Zeitschrift fuer Oekonomie / Journal of Economics).
Volume (Year): 3 (2006)
Issue (Month): 2 ()
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Web page: http://www.elgaronline.com/ejeep
currency unions; Phillips curve; monetary policy; fiscal policy; asset based reserve requirements;
Find related papers by JEL classification:
- E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
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- Engelbert Stockhammer & Stefan Ederer, 2008.
"Demand effects of the falling wage share in Austria,"
Springer, vol. 35(5), pages 481-502, December.
- Engelbert Stockhammer & Stefan Ederer, 2007. "Demand effects of the falling wage share in Austria," Department of Economics Working Papers, Vienna University of Economics, Department of Economics wuwp106, Vienna University of Economics, Department of Economics.
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