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The Costs/Benefits of a Common Monetary Policy in France and Germany and Possible Lessons for Monetary Union

Listed author(s):
  • Mélitz Jacques
  • Axel A. Weber
Registered author(s):

    In order to study the costs/benefits of a monetary union between Germany and France, we attempt to go beyond a mere focus on asymmetries and examine what each country would have lost or gained had there been a common monetary policy. We try to identify the macro effects of such a change within a structural VAR model, which is first estimated by employing mixed long-run and short-run identification schemes and subsequently simulated under the restrictions of a common monetary policy. Our analysis centres on the effect of identical monetary policy on movements in output inflation and the current account. We also study the effects on interest rate differentials in order to draw possible inferences about monetary integration. Based on the usual interpretations of national preferences in both countries, the results imply that, if anything, Germany would lose from any French participation in the setting of domestic monetary policy. By contrast, however, France would clearly gain from corresponding German participation in French decision-making.

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    Paper provided by University of Bonn, Germany in its series Discussion Paper Serie B with number 369.

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    Length: pages
    Date of creation: Apr 1996
    Handle: RePEc:bon:bonsfb:369
    Contact details of provider: Postal:
    Bonn Graduate School of Economics, University of Bonn, Adenauerallee 24 - 26, 53113 Bonn, Germany

    Fax: +49 228 73 6884
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