The Impact of the Single Market on the Effectiveness of ECB Monetary Policy
This paper studies the implications of Europe's single market. Small costs of international trade in goods and services may cause a large home bias in consumer spending and can explain seemingly excessive short-run exchange rate volatility. The European single market (declining costs of international trade between the euro area and the member states which have not adopted the single currency) will reduce the home bias in consumption. As a result, euro area monetary policy becomes less powerful in terms of stabilising consumption, but better able to in°uence the general price level.
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