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Heterogeneous policy responses and the risk of monetary disintegration in Europe

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  • Cornelius, Peter K.
  • Trimbur, Thomas
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    Abstract

    Leaving EMU would create great legal uncertainty and costly litigation and would hence involve extremely high costs for a country that has fully been euronized. Nevertheless, it is conceivable that these costs are not high enough to eliminate fully the risk of monetary disintegration in Europe. In assessing this risk, the paper distinguishes several exit scenarios, whereby particular emphasis is paid to the case where a country decides unilaterally to leave EMU either because of the lack of stabilization efforts in the rest of the union, or, in turn, due to union-wide stabilization efforts which are regarded as excessively ambitious. The empirical results suggest heterogeneous policy responses to macroeconomic strains, implying a non-trivial possibility of escalating tension among the EMU members. --

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    Bibliographic Info

    Paper provided by Deutsche Bank Research in its series Research Notes with number 00-1.

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    Date of creation: 2000
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    Handle: RePEc:zbw:dbrrns:001

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    Keywords: EMU; monetary disintegration;

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    1. Bollerslev, Tim, 1986. "Generalized autoregressive conditional heteroskedasticity," Journal of Econometrics, Elsevier, vol. 31(3), pages 307-327, April.
    2. Buiter, Willem H & Sibert, Anne, 1997. "Transition Issues for the European Monetary Union," CEPR Discussion Papers 1728, C.E.P.R. Discussion Papers.
    3. Alberto Alesina & Roberto Perotti & José Tavares, 1998. "The Political Economy of Fiscal Adjustments," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 29(1), pages 197-266.
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