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The Cost of Heterogeneity in a Monetary Union

  • Hughes Hallett, Andrew
  • Weymark, Diana

In this Paper, we explore whether heterogeneity among union members could threaten the stability of the EMU. The types of heterogeneity we consider are (1) asymmetries in the transmission of monetary and fiscal policies, and (2) differences in national preferences for price stability, output growth, and income redistribution. Our results show that the costs of membership are cumulative and can be significant for countries whose structure and/or preferences deviate from those underlying the common monetary policy. In part, these costs arise because monetary policy imposed by an independent central bank automatically constrains the use of fiscal policy by national governments.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 3223.

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Date of creation: Feb 2002
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Handle: RePEc:cpr:ceprdp:3223
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  1. Sibert, Anne & Sutherland, Alan, 1997. "Monetary Regimes and Labour Market Reform," CEPR Discussion Papers 1731, C.E.P.R. Discussion Papers.
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  17. Mads Kieler & Tuomas Saarenheimo, 1998. "Differences in monetary policy transmission? A case not closed," European Economy - Economic Papers 132, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
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