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Implications of monetary union for catching-up member states

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Author Info
Marcelo Sánchez () (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.)
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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Paper provided by European Central Bank in its series Working Paper Series with number 630.

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Length: 41 pages
Date of creation: May 2006
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Handle: RePEc:ecb:ecbwps:20060630

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Keywords: Monetary union; Balassa-Samuelson effect; exchange rates; price stability.;

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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  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. [Downloadable!]
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