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The impact of monetary instruments on shock absorption in EU-Countries

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  • Müller, Claudia
  • Buscher, Herbert S.
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    Abstract

    The main characteristic of the implementation of the European Monetary Union (EMU) is the transition from various national currencies to the Euro, the common European currency. A final fixing of the individual bilateral exchange rates of all European countries involved in the Monetary Union accompanies this step. Regarding the microeconomic effects, a positive impact on trade is expected by the reduction of transaction and foreign currency management costs as well as by the elimination of the exchange rate uncertainty. Formerly, the latter influenced foreign trade.1 At the same time, however, the autonomy of national economic policy is restricted by the loss of former national monetary policy instruments, which will now operate European-wide with the start of EMU. In addition to a unique interest rate policy inside EMU, there will be no longer an – even limited - flexibility of the nominal exchange rates. According to the theory of Optimal Currency Areas (OCA)2, in a flexible or at least not irrevocably fixed exchange rate system3 these are two potential instruments carrying some of the burden of macroeconomic adjustment. EMU supporters and sceptics give these aspects different values: while supporters hope to obtain growth and employment impulses through more monetary stability, sceptics are anxious, since in their opinion, the economic convergence4 of the European states is yet not optimal and, additionally, alternative instruments do not yet function efficiently. --

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    Bibliographic Info

    Paper provided by ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research in its series ZEW Discussion Papers with number 99-15.

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    Date of creation: 1999
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    Handle: RePEc:zbw:zewdip:5232

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    Keywords: European Monetary Union; Shock Absorption; Monetary Instruments;

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    References

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    1. Steven B. Kamin & Marc Klau, 1997. "Some multi-country evidence on the effects of real exchange rates on output," BIS Working Papers 48, Bank for International Settlements.
    2. Matthew B. Canzoneri & Javier Vallés & José Viñals, 1996. "Do Exchange Rate Move to Address International Macroeconomic Imbalances?," Banco de Espa�a Working Papers 9626, Banco de Espa�a.
    3. Buscher, Herbert & Mueller, Claudia, 1999. "Exchange Rate Volatility Effects on the German Labour Market: A Survey of Recent Results and Extensions," IZA Discussion Papers 37, Institute for the Study of Labor (IZA).
    4. J. Saul Lizondo & Peter J. Montiel, 1989. "Contractionary Devaluation in Developing Countries: An Analytical Overview," IMF Staff Papers, Palgrave Macmillan, vol. 36(1), pages 182-227, March.
    5. Decressin, Jörg & Fatás, Antonio, 1994. "Regional Labour Market Dynamics in Europe," CEPR Discussion Papers 1085, C.E.P.R. Discussion Papers.
    6. Fratianni, Michele & von Hagen, Juergen, 1990. "The European Monetary System ten years after," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 32(1), pages 173-241, January.
    7. Kirchgassner, Gebhard & Wolters, Jurgen, 1993. "Does the DM Dominate the Euro Market? An Empirical Investigation," The Review of Economics and Statistics, MIT Press, vol. 75(4), pages 773-78, November.
    8. Hagen, Jurgen von & Fratianni, Michele, 1990. "German dominance in the EMS: evidence from interest rates," Journal of International Money and Finance, Elsevier, vol. 9(4), pages 358-375, December.
    9. Stirböck, Claudia & Heinemann, Friedrich, 1999. "Capital Mobility within EMU," ZEW Discussion Papers 99-19, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
    10. Dohse, Dirk & Krieger-Boden, Christiane & Siebert, Horst, 1998. "Währungsunion und Arbeitsmarkt : Auftakt zu unabdingbaren Reformen," Open Access Publications from Kiel Institute for the World Economy 997, Kiel Institute for the World Economy (IfW).
    11. De Grauwe, Paul & Vanhaverbeke, Wim, 1991. "Is Europe an Optimum Currency Area? Evidence from Regional Data," CEPR Discussion Papers 555, C.E.P.R. Discussion Papers.
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    Cited by:
    1. Puhani, Patrick A., 1999. "Labour mobility - an adjustment mechanism in Euroland? Empirical evidence for Western Germany, France and Italy," ZEW Discussion Papers 99-47, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
    2. Puhani, Patrick A., 1999. "Labour Mobility - An Adjustment Mechanism in Euroland?," IZA Discussion Papers 34, Institute for the Study of Labor (IZA).
    3. Buscher, Herbert & Mueller, Claudia, 1999. "Exchange Rate Volatility Effects on the German Labour Market: A Survey of Recent Results and Extensions," IZA Discussion Papers 37, Institute for the Study of Labor (IZA).
    4. Claudia Stirböck & Herbert Buscher, 2000. "Exchange rate volatility effects on labour markets," Intereconomics: Review of European Economic Policy, Springer, vol. 35(1), pages 9-22, January.
    5. Lauer, Charlotte, 1999. "The Effects of European Economic and Monetary Union on Wage Behaviour," IZA Discussion Papers 36, Institute for the Study of Labor (IZA).

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