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On the Cost of Moving from a Quasi Monetary Union to a Full Monetary Union: The Case of the Netherlands

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  • W. Jos Jansen

Abstract

We analyze the effects of a contractionary Dutch monetary policy shock that is consistent with the fixed guilder/mark exchange rate. Although monetary policy shocks are quite small, they do have plausible effects: credit, expenditures, output and prices all fall after a monetary tightening. Policy shocks account for non-negligible parts of the forecast error variance of macroeconomic variables. EMU membership thus entails a non-trivial sacrifice in terms of macroeconomic stabilization - even for the Netherlands, which many deemed to be in a quasi monetary union with Germany.

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Bibliographic Info

Paper provided by Netherlands Central Bank, Monetary and Economic Policy Department in its series MEB Series (discontinued) with number 2000-1.

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Date of creation: Jan 2000
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Handle: RePEc:dnb:mebser:2000-1

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Keywords: monetary union; monetary transmission; VAR models.;

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  1. Frankel, Jeffrey A & Rose, Andrew K, 1998. "The Endogeneity of the Optimum Currency Area Criteria," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 108(449), pages 1009-25, July.
  2. Tamim Bayoumi and Barry Eichengreen., 1992. "Shocking Aspects of European Monetary Unification," Economics Working Papers, University of California at Berkeley 92-187, University of California at Berkeley.
  3. Svensson, Lars E O, 1992. "Why Exchange Rate Bands? Monetary Independence in Spite of Fixed Exchange Rates," CEPR Discussion Papers 742, C.E.P.R. Discussion Papers.
  4. Ben Bernanke, 1990. "The Federal Funds Rate and the Channels of Monetary Transnission," NBER Working Papers 3487, National Bureau of Economic Research, Inc.
  5. Garretsen, Harry & Swank, Job, 1998. "The Transmission of Interest Rate Changes and the Role of Bank Balance Sheets: A VAR-Analysis for the Netherlands," Journal of Macroeconomics, Elsevier, Elsevier, vol. 20(2), pages 325-339, April.
  6. Christiano, Lawrence J & Eichenbaum, Martin & Evans, Charles, 1996. "The Effects of Monetary Policy Shocks: Evidence from the Flow of Funds," The Review of Economics and Statistics, MIT Press, vol. 78(1), pages 16-34, February.
  7. Maurice Obstfeld & Giovanni Peri, 1998. "Regional non-adjustment and fiscal policy," Economic Policy, CEPR;CES;MSH, CEPR;CES;MSH, vol. 13(26), pages 205-259, 04.
  8. Ben S. Bernanke & Mark Gertler, 1995. "Inside the Black Box: The Credit Channel of Monetary Policy Transmission," Journal of Economic Perspectives, American Economic Association, vol. 9(4), pages 27-48, Fall.
  9. Jon Faust & Eric M. Leeper, 1994. "When do long-run identifying restrictions give reliable results?," International Finance Discussion Papers, Board of Governors of the Federal Reserve System (U.S.) 462, Board of Governors of the Federal Reserve System (U.S.).
  10. Fank Smets, 1997. "Measuring Monetary Policy Shocks in France, Germany and Italy: The Role of The Exchange Rate," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), Swiss Society of Economics and Statistics (SSES), vol. 133(III), pages 597-616, September.
  11. Sims, Christopher A., 1992. "Interpreting the macroeconomic time series facts : The effects of monetary policy," European Economic Review, Elsevier, vol. 36(5), pages 975-1000, June.
  12. Maurice Obstfeld., 1998. "EMU: Ready, or Not?," Center for International and Development Economics Research (CIDER) Working Papers, University of California at Berkeley C98-101, University of California at Berkeley.
  13. Rina Bhattacharya & Jane Binner, 1998. "The shocking nature of output fluctuations in some EU countries," Applied Economics, Taylor & Francis Journals, Taylor & Francis Journals, vol. 30(8), pages 1101-1125.
  14. Anil K. Kashyap & Jeremy C. Stein, 1997. "The role of banks in monetary policy: a survey with implications for the European Monetary Union," Economic Perspectives, Federal Reserve Bank of Chicago, issue Sep, pages 2-18.
  15. Martin Feldstein, 1998. "The Political Economy of the European Economic and Monetary Union: Political Sources of an Economic Liability," NBER Working Papers 6150, National Bureau of Economic Research, Inc.
  16. Ramana Ramaswamy & Torsten Sløk, 1998. "The Real Effects of Monetary Policy in the European Union: What Are the Differences?," IMF Staff Papers, Palgrave Macmillan, vol. 45(2), pages 374-396, June.
  17. Kumah, F.Y., 1996. "The Effect of Monetary Policy on Exchange Rates: How to Solve the Puzzles," Discussion Paper, Tilburg University, Center for Economic Research 1996-70, Tilburg University, Center for Economic Research.
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