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Price Insurance Aspects of Monetary Union

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  • GEORGE M. VON FURSTENBERG

Abstract

Omitted from traditional optimal currency area criteria, price effects are important because regional monetary union protects from pricing risks and contributes to greater uniformity and efficiency in price‐setting. Among member countries it reduces price dispersion in tradeables in part by irrevocably fixing the internal exchange rate and in part by facilitating arbitrage. The larger integrated market of the euro area also encourages outside producers to engage in more ‘pricing to market’ within it. With inflation differentials in tradeables reduced throughout the euro area, systematic national inflation differentials are likely to be limited to those attributable to productivity differentials that cause differences in the inflation rate of non‐tradeables.

Suggested Citation

  • George M. Von Furstenberg, 2003. "Price Insurance Aspects of Monetary Union," Journal of Common Market Studies, Wiley Blackwell, vol. 41(3), pages 519-539, June.
    • Handle: RePEc:bla:jcmkts:v:41:y:2003:i:3:p:519-539
    DOI: 10.1111/1468-5965.00433
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    References listed on IDEAS

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    Cited by:

    1. Marc Flandreau & Mathilde Maurel, 2005. "Monetary Union, Trade Integration, and Business Cycles in 19th Century Europe," Open Economies Review, Springer, vol. 16(2), pages 135-152, April.
    2. Babetskii, Ian & Boone, Laurence & Maurel, Mathilde, 2004. "Exchange rate regimes and shocks asymmetry: the case of the accession countries," Journal of Comparative Economics, Elsevier, vol. 32(2), pages 212-229, June.
    3. Olivier J. Blanchard & Mitali Das & Hamid Faruqee, 2010. "The Initial Impact of the Crisis on Emerging Market Countries," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 41(1 (Spring), pages 263-323.
    4. Andrén, Niclas & Oxelheim, Lars, 2006. "Producer Prices in the Transition to a Common Currency," Working Paper Series 668, Research Institute of Industrial Economics.

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