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Monetary stabilisation policy in a monetary union: some simple analytics

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  • Andrew Brigden
  • Charles Nolan

Abstract

This paper does two things. First it looks at some simple models of monetary decision-making in a monetary union and asks how much more variable a country's output and inflation is likely to be if it joins the union. The question is asnwered analytically, and the simple model is then calibrated. The model has few structual equations, but does allow an analysis of the relationship between output and inflation variability and certain key parameters. Any conclusions, in this respect, are likely to be sensitive to model specification. However, the paper goes on to identify a second-best issue concerning the optimal make-up of the union which is likely to be more robust: namely that only when all members of the union have the same structural parameter values, and shocks are perfectly correlated, will it be optimal for a new member to have these same structural parameter values.

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Bibliographic Info

Paper provided by Bank of England in its series Bank of England working papers with number 102.

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Date of creation: Oct 1999
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Handle: RePEc:boe:boeewp:102

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References

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Citations

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Cited by:
  1. Jean-Sébastien Pentecôte, 2013. "Fear of a two-speed monetary union: what does a basic correlation scatter plot tell us?," Economics Bulletin, AccessEcon, vol. 33(1), pages 289-299.
  2. De Grauwe, Paul & Senegas, Marc-Alexandre, 2006. "Monetary policy design and transmission asymmetry in EMU: Does uncertainty matter?," European Journal of Political Economy, Elsevier, vol. 22(4), pages 787-808, December.
  3. Egil Matsen & Øistein Røisland, 2003. "Interest Rate Decisions in an Asymmetric Monetary Union," Working Paper Series, Department of Economics, Norwegian University of Science and Technology 2803, Department of Economics, Norwegian University of Science and Technology.
  4. W.H. Buiter, 2000. "Optimal Currency Areas: Why Does the Exchange Rate Regime Matter? (With an Application to UK Membership in EMU)," CEP Discussion Papers dp0462, Centre for Economic Performance, LSE.
  5. Andrew Hughes Hallett & Diana N. Weymark, 2002. "Government Leadership and Central Bank Design," Vanderbilt University Department of Economics Working Papers 0208, Vanderbilt University Department of Economics, revised Dec 2004.
  6. Alexandra Ferreira-Lopes, 2008. "In or Out? The Welfare Costs of EMU Membership," Working Papers Series 1, ISCTE-IUL, Business Research Unit (BRU-IUL) ercwp1408, ISCTE-IUL, Business Research Unit (BRU-IUL).
  7. Andrew Hughes Hallett & Diana N. Weymark, 2001. "The Cost of Heterogeneity in a Monetary Union," Vanderbilt University Department of Economics Working Papers 0128, Vanderbilt University Department of Economics.
  8. Buiter, Willem H, 2000. "Optimal Currency Areas: Why Does The Exchange Rate Regime Matter?," CEPR Discussion Papers, C.E.P.R. Discussion Papers 2366, C.E.P.R. Discussion Papers.
  9. Buiter, Willem H, 2000. "Monetary Misconceptions: New and Old Paradigmata and Other Sad Tales," CEPR Discussion Papers, C.E.P.R. Discussion Papers 2365, C.E.P.R. Discussion Papers.
  10. Moïse Sidiropoulos & Eleftherios Spyromitros, 2006. "Fiscal Policy in a Monetary Union Under Alternative Labour-Market Structures," Working Papers of BETA 2006-25, Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg.

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