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One Money, One Cycle?: Making Monetary Union a Smoother Ride

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Author Info

  • Peter Hoeller
  • Claude Giorno
  • Christine de la Maisonneuve

Abstract

In recent years the euro area has shown less resilience to the negative and largely OECD-wide common shocks than the English-speaking countries, but most of the smaller euro area countries have fared better than the large ones. This paper reviews policy issues that are important in fostering a speedy adjustment to shocks. We argue that the small countries are well placed to adjust swiftly to asymmetric shocks, because they are well integrated with the rest of the area. An activist fiscal policy is not needed and also not powerful enough to smooth the cycle. However, asset bubbles are a cause of concern as their limited weight means that the common monetary policy is more likely to be out of line with their cyclical position. Large countries are less well placed to cope with shocks and sluggish adjustment can be expected. Reforms should focus on raising trade linkages via the completion of the single market, on improving wage and price flexibility and on making their housing markets ... Même monnaie, même cycle ? : Rendre plus souple le fonctionnement de l'union monétaire Au cours des dernières années, la zone euro a fait preuve d'une moindre résistance que les pays nglo-saxons aux chocs négatifs qui ont affecté dans une large mesure l'OCDE dans son ensemble; mais la lupart des plus petits pays de la zone ont mieux tirer leur épingle du jeux que les grands. Cet article passe n revue les questions de politique économique qui sont importantes afin de favoriser un ajustement rapide ux chocs. Nous défendons l'idée que les petits pays sont mieux armés pour s'ajuster promptement à des hocs asymétriques du fait de leur bonne intégration avec le reste de la zone. Une politique budgétaire ctiviste n'est pas nécessaire ni suffisamment puissante pour amortir le cycle. Néanmoins, l'apparition de ulles spéculatives est une source de préoccupation dans leur cas en raison de leur poids limité, lequel mplique que la politique monétaire commune est susceptible d'être plus fréquemment incohérente avec eur position cyclique. Les grands pays sont moins bien armés pour ...

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Bibliographic Info

Paper provided by OECD Publishing in its series OECD Economics Department Working Papers with number 401.

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Date of creation: 16 Sep 2004
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Handle: RePEc:oec:ecoaaa:401-en

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Keywords: taxation; fiscal policy; business cycles; Economic and Monetary Union; Union économique et monétaire; fiscalité; politique budgétaire; cycle économique;

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Cited by:
  1. Crowley, Patrick, 2008. "One Money, Several Cycles? Evaluation of European business cycles using model-based cluster analysis," Research Discussion Papers 3/2008, Bank of Finland.
  2. Iulia Siedschlag, 2008. "Macroeconomic Differentials and Adjustment in the Euro Area," SUERF Studies, SUERF - The European Money and Finance Forum, number 2008/3 edited by Morten Balling.
  3. Traistaru-Siedschlag, Iulia, 2007. "Macroeconomic Adjustment in Ireland under the EMU," Quarterly Economic Commentary: Special Articles, Economic and Social Research Institute (ESRI), vol. 2007(1-Spring), pages 78-92.
  4. Emil Stavrev, 2007. "Growth and Inflation Dispersions in EMU," IMF Working Papers 07/167, International Monetary Fund.
  5. Andrzej Toroj, 2011. "Competitiveness channel in Poland and Slovakia: a pre-EMU DSGE analysis," National Bank of Poland Working Papers 86, National Bank of Poland, Economic Institute.
  6. Andrzej Toroj, 2009. "Macroeconomic adjustment and heterogeneity in the euro area," National Bank of Poland Working Papers 54, National Bank of Poland, Economic Institute.

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