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The Cost of Disinflation and the European Monetary System

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  • De Grauwe, Paul

Abstract

In this paper we present empirical evidence indicating that the EMS countries have experienced a worsening of their inflation/unemployment trade-off since 1979 which on average was more pronounced than in the rest of the OECD area (including the other European countries). We interpret this evidence as follows: the EMS forced its high-inflation members to follow gradual disinflationary policies. As a result, the authorities of these countries gained reputation only slowly compared with countries which applied a shock therapy (UK, US). This also forced them to apply deflationary policies longer than if they had used a shock therap.

Suggested Citation

  • De Grauwe, Paul, 1989. "The Cost of Disinflation and the European Monetary System," CEPR Discussion Papers 326, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:326
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    Citations

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    Cited by:

    1. Helpman, E. & Leiderman, L., 1991. "Exchange Rate Systems: New Perspectives," Papers 3-91, Tel Aviv.
    2. Antoine Berthou & Lionel Fontagné, 2013. "How do Multiproduct Exporters React to a Change in Trade Costs?," Scandinavian Journal of Economics, Wiley Blackwell, vol. 115(2), pages 326-353, April.
    3. Patrick Artus, 1992. "Passage à l'union économique et monétaire en Europe : effets sur la croissance et les politiques budgétaires," Économie et Prévision, Programme National Persée, vol. 106(5), pages 123-137.
    4. William Bryant & Roselyne Joyeux, 2010. "Interest linkages between the US, UK and German interest rates: should the UK join the European Monetary Union?," International Review of Applied Economics, Taylor & Francis Journals, vol. 24(6), pages 633-647.
    5. Kadow, Alexander & Cerrato, Mario & MacDonald, Ronald & Straetmans, Stefan, 2013. "Does the euro dominate Central and Eastern European money markets?," Journal of International Money and Finance, Elsevier, vol. 32(C), pages 700-718.
    6. Reade, J. James & Volz, Ulrich, 2011. "Leader of the pack? German monetary dominance in Europe prior to EMU," Economic Modelling, Elsevier, vol. 28(1-2), pages 239-250, January.
    7. Hallett, Andrew Hughes & Anthony, Myrvin L., 1997. "Exchange rate behaviour under the EMS regime: was there any systematic change?," Journal of International Money and Finance, Elsevier, vol. 16(4), pages 537-560, August.
    8. Hyoung-kyu Chey, 2010. "Can the European Monetary System be a model for East Asian monetary cooperation?," Journal of the Asia Pacific Economy, Taylor & Francis Journals, vol. 15(2), pages 89-105.
    9. J.M. Groeneveld & K.G. Koedijk & C.J.M. Kool, 1997. "Money, prices and the transition to EMU," Banca Nazionale del Lavoro Quarterly Review, Banca Nazionale del Lavoro, vol. 50(203), pages 481-504.
    10. Anthony, Myrvin & MacDonald, Ronald, 1998. "On the mean-reverting properties of target zone exchange rates: Some evidence from the ERM," European Economic Review, Elsevier, vol. 42(8), pages 1493-1523, September.
    11. Fratzscher, Marcel, 2002. "The Euro bloc, the Dollar bloc and the Yen bloc: how much monetary policy independence can exchange rate flexibility buy in an interdependent world?," Working Paper Series 154, European Central Bank.
    12. Emilio Dominguez & Alfonso Novales, 2002. "A factor model of term structure slopes in Eurocurrency markets," Applied Economics Letters, Taylor & Francis Journals, vol. 9(9), pages 585-593.

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