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Designing stabilization policy in a monetary union

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  • Russell Cooper
  • Hubert Kempf

Abstract

The European Monetary Union (EMU) has become a reality, but economists nonetheless continue to debate the desirability and the optimal design of a monetary union. Since a union's essential element is delegation of monetary power to a single centralized entity, one of the key issues in this debate is whether a monetary union will limit the effectiveness of stabilization policy. If so, it will not necessarily be welfare-improving. Having studied a two-country world economy and considered various designs of monetary union, the authors argue that the success of monetary union depends on 1) the commitment ability of the single central bank; 2) the policy flexibility of national fiscal authorities and the central monetary authority; and 3) the cross-country correlation of shocks.

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Paper provided by Federal Reserve Bank of Cleveland in its series Working Paper with number 0001.

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Date of creation: 2000
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Handle: RePEc:fip:fedcwp:0001

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Cited by:
  1. Ca' Zorzi, Michele & De Santis, Roberto A. & Zampolli, Fabrizio, 2005. "Welfare implications of joining a common currency," Working Paper Series, European Central Bank 0445, European Central Bank.
  2. Roberto Tamborini, 2002. "One "monetary giant" with many "fiscal dwarfs": The efficiency of macroeconomic stabilization policies in the European Monetary Union," Department of Economics Working Papers, Department of Economics, University of Trento, Italia 0204, Department of Economics, University of Trento, Italia.
  3. Giovanni Di Bartolomeo & Debora Di Gioacchino, 2005. "Fiscal-Monetary Policy Coordination And Debt Management: A Two Stage Dynamic Analysis," Macroeconomics, EconWPA 0504024, EconWPA.
  4. Dixit, Avinash & Lambertini, Luisa, 2001. "Monetary-fiscal policy interactions and commitment versus discretion in a monetary union," European Economic Review, Elsevier, Elsevier, vol. 45(4-6), pages 977-987, May.
  5. Russell Cooper & Hubert Kempf, 2004. "Overturning Mundell: Fiscal Policy in a Monetary Union," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 71(2), pages 371-396, 04.
  6. Paolo Biraschi, . "Searching for the optimal EMU fiscal rule:an ex-post analysis of the SGP reform proposals," Working Papers, Department of the Treasury, Ministry of the Economy and of Finance wp2008-7, Department of the Treasury, Ministry of the Economy and of Finance.
  7. Luisa Lambertini & Paul Levine & Joseph Pearlman, 2007. "Fiscal Policy in a Monetary Union: Can Fiscal Cooperation be Counterproductive?," School of Economics Discussion Papers, School of Economics, University of Surrey 1707, School of Economics, University of Surrey.
  8. Antoine Martin, 2002. "Endogenous multiple currencies," Research Working Paper, Federal Reserve Bank of Kansas City RWP 02-03, Federal Reserve Bank of Kansas City.
  9. Giovanni Di Bartolomeo & Debora Di Gioacchino, 2004. "Fiscal- Monetary Policy and Debt Management: a Two Stage Dynamic Analysis," Working Papers, University of Rome La Sapienza, Department of Public Economics 74, University of Rome La Sapienza, Department of Public Economics.
  10. Russell Cooper & Hubert Kempf & Dan Peled, 2004. "Is it is or is it Ain't my Obligation? Regional Debt in Monetary Unions," NBER Working Papers 10239, National Bureau of Economic Research, Inc.
  11. Otmar Issing, 2002. "Anmerkungen zur Koordinierung der makroökonomischen Politik in der WWU," Vierteljahrshefte zur Wirtschaftsforschung / Quarterly Journal of Economic Research, DIW Berlin, German Institute for Economic Research, DIW Berlin, German Institute for Economic Research, vol. 71(3), pages 312-324.
  12. Damir Šehović, 2013. "General Aspects of Monetary and Fiscal Policy Coordination," Journal of Central Banking Theory and Practice, Central bank of Montenegro, Central bank of Montenegro, vol. 2(3), pages 5-27.
  13. Russell Cooper & Hubert Kempf, 2003. "Commitment and the Adoption of a Common Currency," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 44(1), pages 119-142, February.
  14. Giovanni Di Bartolomeo & Debora Di Gioacchino, 2008. "Fiscal-monetary policy coordination and debt management: a two-stage analysis," Empirica, Springer, Springer, vol. 35(4), pages 433-448, September.
  15. repec:cbk:journl:v:2:y:2013:i:2:p:5-27 is not listed on IDEAS
  16. Ahmed AlKholifey & Ali Alreshan, 2010. "GCC monetary union," IFC Bulletins chapters, Bank for International Settlements, in: Bank for International Settlements (ed.), Proceedings of the SARB/IFC seminar on "Economic and financial convergence en route to regional economic integration: experience, prospects and statis, volume 32, pages 17-51 Bank for International Settlements.
  17. Østrup, Finn, 2005. "Fiscal Policy and Welfare under Different Exchange Rate Regimes," Working Papers, Copenhagen Business School, Department of Finance 2005-1, Copenhagen Business School, Department of Finance.
  18. Drazen Derado, 2009. "Financial Integration and Financial Crisis: Croatia Approaching The EMU," Financial Theory and Practice, Institute of Public Finance, Institute of Public Finance, vol. 33(3), pages 299-328.

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