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Losses from Membership in EMU: An Estimated Two-Country DSGE Model

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  • Cindy Moons

Abstract

This paper analyzes how adoption of the euro would affect the volatility of output and inflation in the presence of asymmetric shocks. In addition, we investigate whether changes in the objective function of the ECB, or more or less active fiscal policy, can decrease losses entailed by EA membership. Overall, results indicate that a membership would decrease EA losses but increase the new member's losses significantly. However, output variability is shown largely to decrease, a fact which can be explained by the disappearance of the exchange rate. Furthermore, results indicate that automatic stabilizers and flexible inflation targeting can play an important role in reducing these losses.

Suggested Citation

  • Cindy Moons, 2013. "Losses from Membership in EMU: An Estimated Two-Country DSGE Model," Applied Economics Quarterly (formerly: Konjunkturpolitik), Duncker & Humblot, Berlin, vol. 59(1), pages 27-61.
  • Handle: RePEc:aeq:aeqaeq:v59_y2013_i1_q1_p27-61
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    File URL: http://dx.doi.org/10.3790/aeq.59.1.27
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    References listed on IDEAS

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    More about this item

    Keywords

    penalized spline pegression; multivariate nonparametric regression; business cycle; business cycle dating; long-phase cycle;

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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