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Asymmetric Shocks and Monetary Policy in a Currency Union

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  • Lane, Philip R

Abstract

We analyze the conduct of monetary policy in a currency union in the face of asymmetric shocks. In particular, we compare the stabilization properties of a currency union versus alternative exchange rate arrangements. The relative performance of a currency union is shown to depend on the extent of economic integration in patterns of consumption and production and on the relative weights placed on price stability versus employment stability in the monetary authority's objective function. Copyright 2000 by The editors of the Scandinavian Journal of Economics.

Suggested Citation

  • Lane, Philip R, 2000. " Asymmetric Shocks and Monetary Policy in a Currency Union," Scandinavian Journal of Economics, Wiley Blackwell, vol. 102(4), pages 585-604, December.
  • Handle: RePEc:bla:scandj:v:102:y:2000:i:4:p:585-604
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    References listed on IDEAS

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    1. Kenneth Rogoff, 1985. "The Optimal Degree of Commitment to an Intermediate Monetary Target," The Quarterly Journal of Economics, Oxford University Press, vol. 100(4), pages 1169-1189.
    2. Genberg, Hans, 1989. " Exchange Rate Management and Macroeconomic Policy: A National Perspective," Scandinavian Journal of Economics, Wiley Blackwell, vol. 91(2), pages 439-469.
    3. Barro, Robert J. & Gordon, David B., 1983. "Rules, discretion and reputation in a model of monetary policy," Journal of Monetary Economics, Elsevier, vol. 12(1), pages 101-121.
    4. Buiter, Willem H. & Corsetti, Giancarlo & Pesenti, Paolo, 1995. "A Centre-Periphery Model of Monetary Coordination and Exchange Rate Crises," CEPR Discussion Papers 1201, C.E.P.R. Discussion Papers.
    5. Jeffrey A. Frankel and Andrew K. Rose., 1996. "Economic Structure and the Decision to Adopt a Common Currency," Center for International and Development Economics Research (CIDER) Working Papers C96-073, University of California at Berkeley.
    6. Persson, Torsten & Tabellini, Guido, 1995. "Double-edged incentives: Institutions and policy coordination," Handbook of International Economics,in: G. M. Grossman & K. Rogoff (ed.), Handbook of International Economics, edition 1, volume 3, chapter 38, pages 1973-2030 Elsevier.
    7. Matthew B. Canzoneri & Dale W. Henderson, 1991. "Monetary Policy in Interdependent Economies: A Game-Theoretic Approach," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262031787, January.
    8. Tamim Bayoumi & Barry Eichengreen, 1992. "Shocking Aspects of European Monetary Unification," NBER Working Papers 3949, National Bureau of Economic Research, Inc.
    9. Lane, Philip R., 1996. "Stabilization policy in a currency union," Economics Letters, Elsevier, vol. 53(1), pages 53-60, October.
    10. Canzoneri, Matthew B & Gray, Jo Anna, 1985. "Monetary Policy Games and the Consequences of Non-cooperative Behavior," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 26(3), pages 547-564, October.
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    JEL classification:

    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
    • F40 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - General

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