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Can the European Monetary System be Copied Outside Europe? Lessons from Ten Years of Monetary Policy Coordination in Europe

In: International Policy Coordination and Exchange Rate Fluctuations

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  • Francesco Giavazzi
  • Alberto Giovannini

Abstract

This paper addresses the question of whether the European Monetary System can be copied outside Europe. Our answer is negative. The EMS is just one element of a more comprehensive design of institutional integration within Europe: the presence of the European Economic Community, and the dependence of EEC institutions upon exchange rate stability lend credibility to EMS exchange rate targets in a way that would not be present. say, among the United States, Europe and Japan. The EMS has also reproduced previous experiences of fixed exchange rates by not imposing the exchange rate constraint symmetrically upon all member countries: the system has de facto worked as a DM-zone, thus confirming that the institution of fixed rates pg cannot induce international monetary cooperation. Finally, the differences in the use of the inflation tax among European countries and the divergent behavior of government debt after 1979 indicate that the pursuit of monetary convergence among countries with different fiscal structures might entail substantial fiscal reforms.

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This chapter was published in:

  • William H. Branson & Jacob A. Frenkel & Morris Goldstein, 1990. "International Policy Coordination and Exchange Rate Fluctuations," NBER Books, National Bureau of Economic Research, Inc, number bran90-1, October.
    This item is provided by National Bureau of Economic Research, Inc in its series NBER Chapters with number 6950.

    Handle: RePEc:nbr:nberch:6950

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    1. Baldwin, Richard & Krugman, Paul, 1989. "Persistent Trade Effects of Large Exchange Rate Shocks," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 104(4), pages 635-54, November.
    2. Paul R. Krugman, 1988. "Deindustrialization, Reindustrialization, and the Real Exchange Rate," NBER Working Papers 2586, National Bureau of Economic Research, Inc.
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    Cited by:
    1. Eichengreen, Barry, 1989. "The Comparative Performance of Fixed and Flexible Exchange Rate Regimes: Interwar Evidence," CEPR Discussion Papers, C.E.P.R. Discussion Papers 349, C.E.P.R. Discussion Papers.
    2. van der Ploeg, Frederick, 1989. "Fiscal Aspects of Monetary Integration in Europe," CEPR Discussion Papers, C.E.P.R. Discussion Papers 340, C.E.P.R. Discussion Papers.
    3. Yeh, Kuo-chun & Ho, Tai-kuang, 2011. "ERM crisis in retrospect: What if a European central bank had been in existence before 1992?," Economic Modelling, Elsevier, Elsevier, vol. 28(4), pages 1526-1535, July.
    4. Ploeg, F. van der, 1990. "Macroeconomic policy coordination during the various phases of economic and monetary integration in Europe," Discussion Paper, Tilburg University, Center for Economic Research 1990-61, Tilburg University, Center for Economic Research.

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