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Monetary Union of Small Open Economies: The Role of Trasparency Misperceptions

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  • Sánchez, Marcelo

    () (European Central Bank)

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    Abstract

    The cross-country examination of monetary policy transparency scores, economic size and supply slopes produces no clear patterns for the empirical relations in question. This evidence prompts us to formulate a general setup for the study of currency union stabilization when there is monetary policy uncertainty and structural parameters may vary. For small open economies, small size is detrimental to the relative effectiveness of the single monetary policy, while a higher degree of openness yields results that depend on the specific shock considered. A steeper supply schedule hampers monetary union stabilization performance, except under output target shocks. A stronger reaction of aggregate demand to the interest rate is likewise detrimental, except in the event of supply disturbances. The welfare implications of the central bank preference for price stability are ambiguous. Keywords: Monetary Union; Small Open Economies; Asymmetric Information; Transparency JEL Classification: D82; E52; E58; F33; F41

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    Bibliographic Info

    Article provided by Camera di Commercio di Genova in its journal Economia Internazionale / International Economics.

    Volume (Year): 62 (2009)
    Issue (Month): 4 ()
    Pages: 469-504

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    Handle: RePEc:ris:ecoint:0369

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    Related research

    Keywords: Monetary Union; Small Open Economies; Asymmetric Information; Transparency;

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    1. Eijffinger, Sylvester C W & Hoeberichts, Marco & Schaling, Eric, 2000. "Why Money Talks and Wealth Whispers: Monetary Uncertainty and Mystique," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 32(2), pages 218-35, May.
    2. Laurence Ball, 2000. "Policy Rules and External Shocks," NBER Working Papers 7910, National Bureau of Economic Research, Inc.
    3. Christopher W. Crowe & Ellen E. Meade, 2008. "Central Bank Independence and Transparency: Evolution and Effectiveness," IMF Working Papers 08/119, International Monetary Fund.
    4. Laurence Ball, 1998. "Policy Rules for Open Economies," NBER Working Papers 6760, National Bureau of Economic Research, Inc.
    5. Michele Ca’ Zorzi & Elke Hahn & Marcelo Sánchez, 2007. "Exchange rate pass-through in emerging markets," Working Paper Series 739, European Central Bank.
    6. Alesina, Alberto & Spolaore, Enrico & Wacziarg, Romain, 2005. "Trade, Growth and the Size of Countries," Handbook of Economic Growth, in: Philippe Aghion & Steven Durlauf (ed.), Handbook of Economic Growth, edition 1, volume 1, chapter 23, pages 1499-1542 Elsevier.
    7. Geraats, P.M., 2005. "The Mystique of Central Bank Speak," Cambridge Working Papers in Economics 0543, Faculty of Economics, University of Cambridge.
    8. Claudio E. V. Borio & Andrew Filardo, 2007. "Globalisation and inflation: New cross-country evidence on the global determinants of domestic inflation," BIS Working Papers 227, Bank for International Settlements.
    9. Volker Hahn, 2009. "Transparency of Central Bank Preferences," German Economic Review, Verein für Socialpolitik, vol. 10, pages 32-49, 02.
    10. John Beirne & Martin Bijsterbosch, 2009. "Exchange Rate Pass-through in Central and Eastern European Member States," Working Paper Series 1120, European Central Bank.
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