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The Real Effects of EMU

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  • Philip R. Lane

Abstract

We explore the impact of European monetary union (EMU) on the economies of the member countries. While the annual dispersion in inflation rates have not been much different to the variation across US regions, inflation differentials in the euro area have been much more persistent, such that cumulative intra-EMU real exchange rate movements have been quite substantial. EMU has indeed contributed to greater economic integration - however, economic linkages with the rest of the world have also been growing strongly, such that the relative importance of intra-EMU trade has not dramatically increased. In terms of future risks, a severe economic downturn or financial crisis in a member country will be the proving ground for the political viability of EMU.

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Paper provided by IIIS in its series The Institute for International Integration Studies Discussion Paper Series with number iiisdp115.

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Date of creation: 05 Apr 2006
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Handle: RePEc:iis:dispap:iiisdp115

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