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Macroeconomic Policy During a Transition to Monetary Union

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  • Buiter, Willem H

Abstract

The main conclusions of this paper are the following. In order to minimize switching costs, the name of the new EU currency should be the Deutschmark. 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 United States 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 C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 1222.

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Date of creation: Aug 1995
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Handle: RePEc:cpr:ceprdp:1222

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Keywords: European Union; Monetary Union; Optimal Currency Area;

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Citations

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Cited by:
  1. F. Gulcin Ozkan & Anne Sibert & Alan Sutherland, . "Monetary Union, Entry Conditions and Economic Reform," EPRU Working Paper Series 00-03, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics.
  2. 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.
  3. 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.
  4. Sfia, Mohamed Daly, 2006. "Tunisia: Sources Of Real Exchange Rate Fluctuations," MPRA Paper 3129, University Library of Munich, Germany.
  5. 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.
  6. 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.
  7. 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.
  8. 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.
  9. 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.
  10. 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.
  11. 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.
  12. Julius Horvath, 2004. "Optimum currency area theory: A selective review," Macroeconomics 0401014, EconWPA.
  13. 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.
  14. Louis Kuijs & Alain Borghijs, 2004. "Exchange Rates in Central Europe," IMF Working Papers 04/2, International Monetary Fund.
  15. 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.
  16. 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.

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