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Monetary Interdependence under Alternative Exchange-Rate Regimes: A European Perspective

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  • van der Ploeg, Frederick

Abstract

This paper analyses and compares the effects of common demand and supply shocks on the setting of optimal monetary policies under a clean float, a managed exchange rate system (such as the EMS) and a monetary union, when welfare depends on unemployment and the cost of living. The results suggest that monetary union yields the smallest welfare loss and a float the greatest, and that the EMS gives France and Italy the opportunity to appreciate their currencies and reduce their welfare loss at the expense of Germany. The robustness of the results with respect to rational expectations and wage-price dynamics is verified with the aid of differential game theory and numerical simulation.

Suggested Citation

  • van der Ploeg, Frederick, 1989. "Monetary Interdependence under Alternative Exchange-Rate Regimes: A European Perspective," CEPR Discussion Papers 358, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:358
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    Cited by:

    1. Henri Sterdyniak & Pierre Villa, 1993. "Régimes de change et coordination des politiques économiques en Europe," Revue de l'OFCE, Programme National Persée, vol. 43(1), pages 307-348.
    2. Patrick Artus, 1992. "Passage à l'union économique et monétaire en Europe : effets sur la croissance et les politiques budgétaires," Économie et Prévision, Programme National Persée, vol. 106(5), pages 123-137.
    3. repec:hal:spmain:info:hdl:2441/5265 is not listed on IDEAS

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