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Implications of monetary union for catching-up member states

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  • Sánchez, Marcelo
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    Abstract

    We examine the implications of monetary union for macroeconomic stabilisation in catching up participating countries. We allow member states’supply conditions to differ inside the union, especially with regard to sectoral characteristics. Sectoral productivity shocks on balance hamper the stabilisation properties of a currency union. In the face of aggregate supply disturbances, the stabilisation costs of renouncing monetary autonomy diminish with a flatter output-inflation tradeoff and - barring idiosyncratic shocks - with a larger reference country size, more homogeneous supply slopes and a higher preference for price stability. JEL Classification: E52, E58, F33, F40

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    Bibliographic Info

    Paper provided by European Central Bank in its series Working Paper Series with number 0630.

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    Date of creation: May 2006
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    Handle: RePEc:ecb:ecbwps:20060630

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    Related research

    Keywords: Balassa-Samuelson Effect; Exchange Rates; monetary union; price stability;

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    Cited by:
    1. Marcelo Sánchez, 2006. "Implications of country size and trade openness for euro area enlargement," CESifo Forum, Ifo Institute for Economic Research at the University of Munich, vol. 7(4), pages 11-16, December.

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