Joining the European Monetary Union - Comparing First and Second Generation Open Economy Models
We log-linearise the Dellas and Tavlas (DT) model of monetary union and solve it analytically. We find that the intuition of optimal currency analysis of DT's second generation open economy model is essentially the same as that of first generation models. Monetary union results in no welfare loss if its member states are symmetric. However, asymmetry causes loss in welfare both due to the failure of the union policy to deal suitably with a country's asymmetric shocks and due to an active monetary policy by union in pursuit of its distinct objectives. The asymmetry in DT is largely due to the differing wage rigidities across countries.
|Date of creation:||Apr 2006|
|Date of revision:|
|Contact details of provider:|| Postal: Centre for Economic Policy Research, 77 Bastwick Street, London EC1V 3PZ.|
Phone: 44 - 20 - 7183 8801
Fax: 44 - 20 - 7183 8820
|Order Information:|| Email: |
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Minford, Patrick, 1995. "Other people's money: Cash-in-advance microfoundations for optimal currency areas," Journal of International Money and Finance, Elsevier, vol. 14(3), pages 427-440, June.
- Harris Dellas & George Tavlas, 2005.
"Wage Rigidity and Monetary Union,"
Royal Economic Society, vol. 115(506), pages 907-927, October.
- Harris Dellas & George Tavlas, 2002. "Wage Rigidity and Monetary Union," Diskussionsschriften dp0219, Universitaet Bern, Departement Volkswirtschaft.
- Dellas, Harris & Tavlas, George, 2003. "Wage Rigidity and Monetary Union," CEPR Discussion Papers 3679, C.E.P.R. Discussion Papers.
- Harris Dellas & George Tavlas, 2004. "Wage Rigidity and Monetary Union," Working Papers 12, Bank of Greece.
- Patrick Minford & Eric Nowell & Bruce Webb, 2003. "Nominal Contracting and Monetary Targets -- Drifting into Indexation," Economic Journal, Royal Economic Society, vol. 113(484), pages 65-100, January.
- Canzoneri, Matthew B. & Cumby, Robert E. & Diba, Behzad T., 2005.
"The need for international policy coordination: what's old, what's new, what's yet to come?,"
Journal of International Economics,
Elsevier, vol. 66(2), pages 363-384, July.
- Matthew B. Canzoneri & Robert E. Cumby & Behzad T. Diba, 2002. "The Need for International Policy Coordination: What's Old, What's New, What's Yet to Come?," NBER Working Papers 8765, National Bureau of Economic Research, Inc.
- Patrick Minford & David Meenagh & Bruce Webb, 2004. "Britain and EMU: Assessing the Costs in Macroeconomic Variability," The World Economy, Wiley Blackwell, vol. 27(3), pages 301-358, 03.
When requesting a correction, please mention this item's handle: RePEc:cpr:ceprdp:5615. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()
If references are entirely missing, you can add them using this form.