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Adjustment Difficulties within a European Monetary Union: Can They be Reduced?

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  • Hughes Hallett, Andrew
  • Vines, David

Abstract

This paper analyses four costs which may be associated with monetary union. First it (obviously) allows no `relative' monetary accommodation of the kind which may assist when dealing with asymmetric shocks. This can impose significant adjustment costs. Second it does not of itself prevent `absolute' accommodation to an inflation shock originating in all members, or even one member, of the union. Third, the distribution of benefits of membership of the union may be skewed. Finally, a union may require significant fiscal flexibility to mitigate against the adjustment costs. We investigate the form of fiscal flexibility which may be required, and we also propose a form of Soft Monetary Union which might alleviate the first problem.

Suggested Citation

  • Hughes Hallett, Andrew & Vines, David, 1991. "Adjustment Difficulties within a European Monetary Union: Can They be Reduced?," CEPR Discussion Papers 517, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:517
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    Citations

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    Cited by:

    1. Barry Eichengreen & Jürgen Hagen, 1996. "Fiscal restrictions and monetary union: Rationales, repercussions, reforms," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 23(1), pages 3-23, February.
    2. Tatiana Kirsanova & Mathan Satchi & David Vines & Simon Wren-Lewis, 2007. "Optimal Fiscal Policy Rules in a Monetary Union," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 39(7), pages 1759-1784, October.
    3. Chris Kirrane, 2018. "The Bretton Woods Experience and ERM," Papers 1807.00418, arXiv.org.
    4. Laurence Boone, 1997. "Symmetry and Asymmetry of Supply and Demand Shocks in the European Union," Working Papers 1997-03, CEPII research center.
    5. Barry Eichengreen and Jurgen von Hagen., 1995. "Fiscal Policy and Monetary Union: Federalism, Fiscal Restrictions and the No-Bailout Rule," Center for International and Development Economics Research (CIDER) Working Papers C95-056, University of California at Berkeley.
    6. Jean-Paul Fitoussi & Marc Flandreau, 1994. "Le Système monétaire international et l'Union monétaire européenne," Revue de l'OFCE, Programme National Persée, vol. 51(1), pages 167-181.
    7. Kirrane, Chris, 1995. "The Bretton Woods Experience and ERM," MPRA Paper 89000, University Library of Munich, Germany.
    8. Christodoulakis, Nicos & Garratt, Anthony & Currie, David, 1996. "Target zones and alternative proposals for G3 policy coordination: An empirical evaluation using GEM," Journal of Macroeconomics, Elsevier, vol. 18(1), pages 49-68.
    9. repec:hal:spmain:info:hdl:2441/5636 is not listed on IDEAS
    10. Barry Eichengreen & Jurgen von Hagen, 1996. "Fiscal Policy and Monetary Union: Is There a Tradeoff between Federalism and Budgetary Restrictions?," NBER Working Papers 5517, National Bureau of Economic Research, Inc.

    More about this item

    Keywords

    EMU; Fiscal Rules;

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