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An Estimated Two-Country DSGE Model: losses from UK membership in EMU

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  • Moons, Cindy

    ()
    (Hogeschool-Universiteit Brussel (HUB), Belgium)

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    Abstract

    Given the importance of a high degree of homogeneity between the members states of the EMU, one of the research questions that this paper aims at answering is in determining the degree of heterogeneity between the UK and the EA. Furthermore, it is analyzed how an hypothetical membership of the UK affects the volatility of output and inflation in both economies. In addition, it is investigated whether changes in the objective function of the ECB, or more or less active fiscal policy, can decrease the losses of a membership. Overall, the results point at a high degree of homogeneity in de conduct of monetary and fiscal policy in both economies. However, results also point at heterogeneity in consumer behavior. While a membership would increase UK losses significantly, results show that automatic stabilizers can play an important role in reducing these losses.

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    File URL: https://lirias.hubrussel.be/bitstream/123456789/2693/4/09HRP23.pdf
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    Bibliographic Info

    Paper provided by Hogeschool-Universiteit Brussel, Faculteit Economie en Management in its series Working Papers with number 2009/23.

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    Length: 56 page
    Date of creation: Oct 2009
    Date of revision:
    Handle: RePEc:hub:wpecon:200923

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    Web page: http://research.hubrussel.be
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    Related research

    Keywords: Fiscal Policy; Monetary Policy;

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    1. P. Jacob & G. Peersman, 2008. "Dissecting the Dynamics of the US Trade Balance in an Estimated Equilibrium Model," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 08/544, Ghent University, Faculty of Economics and Business Administration.
    2. Fritz Breuss & Katrin Rabitsch, 2008. "An Estimated Two Country DSGE Model of Austria and the Euro Area," FIW Working Paper series 017, FIW.
    3. Fagan, Gabriel & Henry, Jérôme & Mestre, Ricardo, 2001. "An area-wide model (AWM) for the euro area," Working Paper Series 0042, European Central Bank.
    4. Eric Jondeau & Jean-Guillaume Sahuc, 2008. "Optimal Monetary Policy in an Estimated DSGE Model of the Euro Area with Cross-Country Heterogeneity," International Journal of Central Banking, International Journal of Central Banking, vol. 4(2), pages 23-72, June.
    5. Vicente Tuesta & Pau Rabanal, 2006. "Euro-Dollar Real Exchange Rate Dynamics in an Estimated Two-Country Model," IMF Working Papers 06/177, International Monetary Fund.
    6. Joseph Plasmans & Tomasz Michalak & Jorge Fornero, 2006. "Simulation, estimation and welfare implications of monetary policies in a 3-country NOEM model," Working Paper Research 94, National Bank of Belgium.
    7. Ernest Pytlarczyk, 2005. "An Estimated DSGE Model for The German Economy," Computing in Economics and Finance 2005 318, Society for Computational Economics.
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