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Macroeconomic policy during a transition to monetary union

  • Willem H. Buiter

The main conclusions of the paper are the following: - In order to minimize switching costs, the name of the new EU currency should be the D-mark - Differential national requirements for seigniorage revenue provide a weak case for retaining national monetary independence. - From the point of view of adjustment to asymmetric shocks, nominal exchange rate flexibility is at best a limited blessing and at worst a limited curse. - Inter-state labour mobility in the USA does not compensate for the absence of state-level exchange rate flexibility. - The absence of significant inter-member fiscal redistribution mechanisms in the EU is not an obstacle to monetary union. - Convergence or divergence in real economic performance is irrelevant for monetary union. - A common currency is the logical implication of unrestricted international mobility of financial capital. - The Maastricht criteria are unlikely to hinder monetary union. - There are no convincing economic objections left to monetary union in the EU.

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File URL: http://eprints.lse.ac.uk/20701/
File Function: Open access version.
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Paper provided by London School of Economics and Political Science, LSE Library in its series LSE Research Online Documents on Economics with number 20701.

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Length: 71 pages
Date of creation: Aug 1995
Date of revision:
Handle: RePEc:ehl:lserod:20701
Contact details of provider: Postal: LSE Library Portugal Street London, WC2A 2HD, U.K.
Phone: +44 (020) 7405 7686
Web page: http://www.lse.ac.uk/

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  1. Willem H. Buiter & Giancarlo Corsetti & Paolo A. Pesenti, 1995. "A Center-Periphery Model of Monetary Coordination and Exchange Rate Crises," NBER Working Papers 5140, National Bureau of Economic Research, Inc.
  2. N. Gregory Mankiw, 1987. "The Optimal Collection of Seigniorage: Theory and Evidence," NBER Working Papers 2270, National Bureau of Economic Research, Inc.
  3. Zhu, Xiaodong, 1992. "Optimal fiscal policy in a stochastic growth model," Journal of Economic Theory, Elsevier, vol. 58(2), pages 250-289, December.
  4. Melitz, Jacques, 1991. "A Suggested Reformulation of the Theory of Optimal Currency Areas," CEPR Discussion Papers 590, C.E.P.R. Discussion Papers.
  5. Dowd, Kevin & Greenaway, David, 1993. "Currency Competition, Network Externalities and Switching Costs: Towards an Alternative View of Optimum Currency Areas," Economic Journal, Royal Economic Society, vol. 103(420), pages 1180-89, September.
  6. Sachs, Jeffrey & Sala-i-Martin, Xavier, 1992. "Fiscal Federalism and Optimum Currency Areas: Evidence for Europe from the United States," CEPR Discussion Papers 632, C.E.P.R. Discussion Papers.
  7. Ozkan, F Gulcin & Sutherland, Alan, 1994. "A Model of the ERM Crisis," CEPR Discussion Papers 879, C.E.P.R. Discussion Papers.
  8. Chamley, Christophe, 1986. "Optimal Taxation of Capital Income in General Equilibrium with Infinite Lives," Econometrica, Econometric Society, vol. 54(3), pages 607-22, May.
  9. Olivier Jean Blanchard & Lawrence F. Katz, 1992. "Regional Evolutions," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 23(1), pages 1-76.
  10. De Grauwe, Paul & Vanhaverbeke, Wim, 1991. "Is Europe an Optimum Currency Area? Evidence from Regional Data," CEPR Discussion Papers 555, C.E.P.R. Discussion Papers.
  11. Bayoumi, Tamim & Masson, Paul R, 1994. "Fiscal Flows in the United States and Canada: Lessons for Monetary Union in Europe," CEPR Discussion Papers 1057, C.E.P.R. Discussion Papers.
  12. Masson, Paul R & Taylor, Mark P, 1992. "Common Currency Areas and Currency Unions: An Analysis of the Issues," CEPR Discussion Papers 617, C.E.P.R. Discussion Papers.
  13. Hammond, George & von Hagen, Jürgen, 1995. "Regional Insurance Against Asymmetric Shocks. An Empirical Study for the European Community," CEPR Discussion Papers 1170, C.E.P.R. Discussion Papers.
  14. Maurice Obstfeld, 1994. "The Logic of Currency Crises," NBER Working Papers 4640, National Bureau of Economic Research, Inc.
  15. Barry Eichengreen & Charles Wyplosz, 1993. "The Unstable EMS," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 24(1), pages 51-144.
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