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A General Framework for the Macroeconomic Analysis of Monetary Unions

  • Oscar Bajo Rubio
  • Carmen Díaz-Roldán

The objective of this paper is to develop a general framework for the macroeconomic modelling of monetary unions, which could be useful for policy analysis, as well as for teaching purposes. Our starting point will be the standard twocountry Mundell-Fleming model with perfect capital mobility, extended to incorporate the supply side, and modified so that the money market is common for two countries forming a monetary union. The model is presented in two versions: for a small and a big monetary union, respectively. After solving each model, we will derive multipliers for monetary, real (i. e., demand-side), supply, and external shocks, paying a special attention to the distinction between symmetric and asymmetric shocks. A graphical analysis is also provided.

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Paper provided by FEDEA in its series Working Papers on International Economics and Finance with number 01-06.

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Handle: RePEc:fda:fdadef:01-06
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  1. Layard, Richard & Nickell, Stephen & Jackman, Richard, 2005. "Unemployment: Macroeconomic Performance and the Labour Market," OUP Catalogue, Oxford University Press, number 9780199279173.
  2. Richard C. Marston, 1984. "Exchange Rate Unions as an Alternative to Flexible Rates: The Effects of Real and Monetary Disturbances," NBER Chapters, in: Exchange Rate Theory and Practice, pages 407-442 National Bureau of Economic Research, Inc.
  3. Maurice Obstfeld & Kenneth Rogoff, 1995. "The Mirage of Fixed Exchange Rates," Journal of Economic Perspectives, American Economic Association, vol. 9(4), pages 73-96, Fall.
  4. Carlin, Wendy & Soskice, David, 1990. "Macroeconomics and the Wage Bargain: A Modern Approach to Employment, Inflation, and the Exchange Rate," OUP Catalogue, Oxford University Press, number 9780198772446.
  5. Läufer, Nikolaus K. A. & Sundararajan, Srinivasa, 1994. "The international transmission of economic shocks in a three-country world under mixed exchange rates," Discussion Papers, Series II 216, University of Konstanz, Collaborative Research Centre (SFB) 178 "Internationalization of the Economy".
  6. Sachs, Jeffrey, 1980. "Wages, Flexible Exchange Rates, and Macroeconomic Policy," The Quarterly Journal of Economics, MIT Press, vol. 94(4), pages 731-47, June.
  7. Laufer, Nikolaus K. A. & Sundararajan, Srinivasa, 1994. "The international transmission of economic shocks in a three-country world under mixed exchange rates," Journal of International Money and Finance, Elsevier, vol. 13(4), pages 429-446, August.
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