The Costs/Benefits of a Common Monetary Policy in France and Germany and Possible Lessons for Monetary Union
AbstractIn order to study the costs/benefits of a monetary union between Germany and France, we attempt to go beyond a mere focus on asymmetries and examine what each country would have lost or gained had there been a common monetary policy. We try to identify the macro effects of such a change within a structural VAR model, which is first estimated by employing mixed long-run and short-run identification schemes and subsequently simulated under the restrictions of a common monetary policy. Our analysis centres on the effect of identical monetary policy on movements in output inflation and the current account. We also study the effects on interest rate differentials in order to draw possible inferences about monetary integration. Based on the usual interpretations of national preferences in both countries, the results imply that, if anything, Germany would lose from any French participation in the setting of domestic monetary policy. By contrast, however, France would clearly gain from corresponding German participation in French decision-making.
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Bibliographic InfoPaper provided by University of Bonn, Germany in its series Discussion Paper Serie B with number 369.
Date of creation: Apr 1996
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Optimum currency areas; structural vector autoregression; shocks; costs/benefits; monetary union;
Find related papers by JEL classification:
- F02 - International Economics - - General - - - International Economic Order; Noneconomic International Organizations;; Economic Integration and Globalization: General
- F15 - International Economics - - Trade - - - Economic Integration
- F40 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - General
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