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Macroeconomic Policy During a Transition to Monetary Union

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  • W.H. Buiter

Abstract

The main conclusions of the paper are the following: - In order to minimize switching costs, the name of the new EU currency should be the D-mark - Differential national requirements for seigniorage revenue provide a weak case for retaining national monetary independence. - From the point of view of adjustment to asymmetric shocks, nominal exchange rate flexibility is at best a limited blessing and at worst a limited curse. - Inter-state labour mobility in the USA does not compensate for the absence of state-level exchange rate flexibility. - The absence of significant inter-member fiscal redistribution mechanisms in the EU is not an obstacle to monetary union. - Convergence or divergence in real economic performance is irrelevant for monetary union. - A common currency is the logical implication of unrestricted international mobility of financial capital. - The Maastricht criteria are unlikely to hinder monetary union. - There are no convincing economic objections left to monetary union in the EU.

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Paper provided by Centre for Economic Performance, LSE in its series CEP Discussion Papers with number dp0261.

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Date of creation: Aug 1995
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Handle: RePEc:cep:cepdps:dp0261

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Web page: http://cep.lse.ac.uk/_new/publications/series.asp?prog=CEP

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  1. Olivier Jean Blanchard & Lawrence F. Katz, 1992. "Regional Evolutions," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 23(1), pages 1-76.
  2. von Hagen, Jurgen & Hammond, George W, 1998. "Regional Insurance against Asymmetric Shocks: An Empirical Study for the European Community," The Manchester School of Economic & Social Studies, University of Manchester, vol. 66(3), pages 331-53, June.
  3. Bayoumi, Tamim & Masson, Paul R., 1995. "Fiscal flows in the United States and Canada: Lessons for monetary union in Europe," European Economic Review, Elsevier, vol. 39(2), pages 253-274, February.
  4. Xavier Sala-i-Martin & Jeffrey Sachs, 1991. "Fiscal Federalism and Optimum Currency Areas: Evidence for Europe From the United States," NBER Working Papers 3855, National Bureau of Economic Research, Inc.
  5. Zhu, Xiaodong, 1992. "Optimal fiscal policy in a stochastic growth model," Journal of Economic Theory, Elsevier, vol. 58(2), pages 250-289, December.
  6. F. Gulcin Ozkan & Alan Sutherland, . "A Model of the ERM Crisis," EPRU Working Paper Series 93-09, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics.
  7. Dowd, Kevin & Greenaway, David, 1993. "Currency Competition, Network Externalities and Switching Costs: Towards an Alternative View of Optimum Currency Areas," Economic Journal, Royal Economic Society, vol. 103(420), pages 1180-89, September.
  8. Jacques Mélitz, 1995. "A suggested reformulation of the theory of optimal currency areas," Open Economies Review, Springer, vol. 6(3), pages 281-298, July.
  9. De Grauwe, Paul & Vanhaverbeke, Wim, 1991. "Is Europe an Optimum Currency Area? Evidence from Regional Data," CEPR Discussion Papers 555, C.E.P.R. Discussion Papers.
  10. Maurice Obstfeld, 1994. "The Logic of Currency Crises," NBER Working Papers 4640, National Bureau of Economic Research, Inc.
  11. Barry Eichengreen & Charles Wyplosz, 1993. "The Unstable EMS," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 24(1), pages 51-144.
  12. N. Gregory Mankiw, 1987. "The Optimal Collection of Seigniorage: Theory and Evidence," NBER Working Papers 2270, National Bureau of Economic Research, Inc.
  13. W.H. Buiter & G Corsetti & P Pesenti, 1995. "A Center-Periphery Model of Monetary Coordination and Exchange Rate Crises," CEP Discussion Papers dp0246, Centre for Economic Performance, LSE.
  14. Chamley, Christophe, 1986. "Optimal Taxation of Capital Income in General Equilibrium with Infinite Lives," Econometrica, Econometric Society, vol. 54(3), pages 607-22, May.
  15. Masson, Paul R & Taylor, Mark P, 1992. "Common Currency Areas and Currency Unions: An Analysis of the Issues," CEPR Discussion Papers 617, C.E.P.R. Discussion Papers.
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Cited by:
  1. Huang, Ying & Guo, Feng, 2006. "Is currency union a feasible option in East Asia?: A multivariate structural VAR approach," Research in International Business and Finance, Elsevier, vol. 20(1), pages 77-94, March.
  2. Horvath, Julius & Ratfai, Attila, 2004. "Supply and demand shocks in accession countries to the Economic and Monetary Union," Journal of Comparative Economics, Elsevier, vol. 32(2), pages 202-211, June.
  3. Michael C. Burda, 2001. "European Labour Markets and the Euro: How Much Flexibility Do We Really Need?," Economics Working Papers 003, European Network of Economic Policy Research Institutes.
  4. Ozkan, F Gulcin & Sibert, Anne & Sutherland, Alan, 1997. "Monetary Union, Entry Conditions and Economic Reform," CEPR Discussion Papers 1720, C.E.P.R. Discussion Papers.
  5. Horvath, Julius, 2003. "Optimum currency area theory: A selective review," BOFIT Discussion Papers 15/2003, Bank of Finland, Institute for Economies in Transition.
  6. Carlin, Wendy & Glyn, Andrew & Van Reenen, John, 2001. "Export Market Performance of OECD Countries: An Empirical Examination of the Role of Cost Competitiveness," Economic Journal, Royal Economic Society, vol. 111(468), pages 128-62, January.
  7. Uctum, Merih & Deusy-Fournier, Pierre, 1998. "Le dollar et l’euro : la primauté monétaire de l’Europe a-t-elle une place?," L'Actualité Economique, Société Canadienne de Science Economique, vol. 74(4), pages 669-694, décembre.
  8. Louis Kuijs & Alain Borghijs, 2004. "Exchange Rates in Central Europe," IMF Working Papers 04/2, International Monetary Fund.
  9. Hélène Erkel-Rousse, 1997. "Degré de flexibilité des marchés du travail, ajustement à des chocs asymétriques et union monétaire européenne," Économie et Prévision, Programme National Persée, vol. 128(2), pages 79-100.
  10. Ricci, Luca Antonio, 2008. "A Model of an Optimum Currency Area," Economics - The Open-Access, Open-Assessment E-Journal, Kiel Institute for the World Economy, vol. 2(8), pages 1-31.
  11. Raoul Lättemäe, 2003. "EMU Accession Issues in Baltic Countries," Eastward Enlargement of the Euro-zone Working Papers wp17a, Free University Berlin, Jean Monnet Centre of Excellence, revised 01 May 2003.
  12. Hartley, Peter R. & Whitt Jr, Joseph A., 2003. "Macroeconomic fluctuations: Demand or supply, permanent or temporary?," European Economic Review, Elsevier, vol. 47(1), pages 61-94, February.
  13. Peter R. Hartley & Joseph A. Whitt, Jr., 1997. "Macroeconomic fluctuations in Europe: demand or supply, permanent or temporary?," Working Paper 97-14, Federal Reserve Bank of Atlanta.
  14. Sławomir Bukowski, 2011. "Economic and Monetary Union – Current Fiscal Disturbances and the Future," International Advances in Economic Research, Springer, vol. 17(3), pages 274-287, August.
  15. S. Sgherri, 2000. "When is labour market flexibility welcome? More on asymmetric policy impacts in Europe," WO Research Memoranda (discontinued) 619, Netherlands Central Bank, Research Department.
  16. Sfia, Mohamed Daly, 2006. "Tunisia: Sources Of Real Exchange Rate Fluctuations," MPRA Paper 3129, University Library of Munich, Germany.

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