Monetary Union and Macroeconomic Stabilization
AbstractIt is conventionally held that countries are worse off by forming a monetary union when it comes to macroeconomic stabilization. However, this conventional view relies on assuming that monetary policy is conducted optimally. Relaxing the assumption of optimal monetary policy not only uncovers that countries do benefit from forming a monetary union under fairly general conditions. More importantly, it also reveals that a monetary union entails the inherent benefit of stabilizing private-sector expectations about future inflation. As a result, inflation rates are more stable in a monetary union
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Bibliographic InfoPaper provided by Kiel Institute for the World Economy in its series Kiel Working Papers with number 1881.
Length: 63 pages
Date of creation: Nov 2013
Date of revision:
Monetary union; macroeconomic stabilization; welfare analysis; history dependence; inflation expectations;
Find related papers by JEL classification:
- F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
- F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
- E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-11-29 (All new papers)
- NEP-CBA-2013-11-29 (Central Banking)
- NEP-MAC-2013-11-29 (Macroeconomics)
- NEP-MON-2013-11-29 (Monetary Economics)
- NEP-OPM-2013-11-29 (Open Economy Macroeconomics)
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