Monetary Cohabitation in Europe
AbstractHow can monetary policy in stage III of European Monetary Union be coordinated between the ‘ins’ and the ‘outs’? This paper compares alternative institutional mechanisms, and concludes that a generalized system of inflation targets at the European level has several merits: it strengthens domestic credibility of monetary policy; it rules out deliberate attempts to gain competitiveness through devaluations; it forces monetary policy to respond automatically to various macroeconomic shocks, which is stabilizing for the real exchange rate; and it distributes these shocks symmetrically across countries. On the basis of a simple theoretical model of policy coordination, the paper shows that a system of inflation targets approximates an optimal policy of international cooperation. Preliminary empirical evidence supports these theoretical results.
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Bibliographic InfoPaper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 1380.
Date of creation: May 1996
Date of revision:
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Other versions of this item:
- Torsten Persson & Guido Tabellini, . "Monetary Cohabitation in Europe," Working Papers 96, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
- Torsten Persson & Guido Tabellini, 1996. "Monetary Cohabitation in Europe," NBER Working Papers 5532, National Bureau of Economic Research, Inc.
- E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
- E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
- F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
- F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission
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- Maurice Obstfeld., 1996. "Destabilizing Effects of Exchange-Rate Escape Clauses," Center for International and Development Economics Research (CIDER) Working Papers C96-075, University of California at Berkeley.
- Canzoneri, Matthew B & Gray, Jo Anna, 1985. "Monetary Policy Games and the Consequences of Non-cooperative Behavior," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 26(3), pages 547-64, October.
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