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Designing stabilization policy in a monetary union

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  • Russell W. Cooper
  • Hubert Kempf

Abstract

The European Monetary Union (EMU) has become a reality, but economists nonetheless continue to debate the desirability and the optimal design of a monetary union. Since a union's essential element is delegation of monetary power to a single centralized entity, one of the key issues in this debate is whether a monetary union will limit the effectiveness of stabilization policy. If so, it will not necessarily be welfare-improving. Having studied a two-country world economy and considered various designs of monetary union, the authors argue that the success of monetary union depends on 1) the commitment ability of the single central bank; 2) the policy flexibility of national fiscal authorities and the central monetary authority; and 3) the cross-country correlation of shocks.

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  • Russell W. Cooper & Hubert Kempf, 2000. "Designing stabilization policy in a monetary union," Working Papers (Old Series) 0001, Federal Reserve Bank of Cleveland.
    • Handle: RePEc:fip:fedcwp:0001
    DOI: 10.26509/frbc-wp-200001
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    Cited by:

    1. Martin, Antoine, 2006. "Endogenous Multiple Currencies," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 38(1), pages 245-262, February.
    2. Giovanni Di Bartolomeo & Debora Di Gioacchino, 2008. "Fiscal-monetary policy coordination and debt management: a two-stage analysis," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 35(4), pages 433-448, September.
    3. Drazen Derado, 2009. "Financial Integration and Financial Crisis: Croatia Approaching The EMU," Financial Theory and Practice, Institute of Public Finance, vol. 33(3), pages 299-328.
    4. L. Marattin & S. Meraglia, 2015. "Potential Output and Fiscal Rules in a Monetary Union under Asymmetric Information," Working Papers wp1018, Dipartimento Scienze Economiche, Universita' di Bologna.
    5. Ahmed AlKholifey & Ali Alreshan, 2010. "GCC monetary union," IFC Bulletins chapters, in: Bank for International Settlements (ed.), Proceedings of the SARB/IFC seminar on "Economic and financial convergence en route to regional economic integration: experience, prospects and statis, volume 32, pages 17-51, Bank for International Settlements.
    6. Giovanni Di Bartolomeo & Debora Di Gioacchino, 2004. "Fiscal- Monetary Policy and Debt Management: a Two Stage Dynamic Analysis," Working Papers in Public Economics 74, Department of Economics and Law, Sapienza University of Roma.
    7. Russell Cooper & Hubert Kempf, 2004. "Overturning Mundell: Fiscal Policy in a Monetary Union," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 71(2), pages 371-396.
    8. Ca' Zorzi, Michele & De Santis, Roberto A. & Zampolli, Fabrizio, 2005. "Welfare implications of joining a common currency," Working Paper Series 445, European Central Bank.
    9. Otmar Issing, 2002. "Anmerkungen zur Koordinierung der makroökonomischen Politik in der WWU," Vierteljahrshefte zur Wirtschaftsforschung / Quarterly Journal of Economic Research, DIW Berlin, German Institute for Economic Research, vol. 71(3), pages 312-324.
    10. Dixit, Avinash & Lambertini, Luisa, 2001. "Monetary-fiscal policy interactions and commitment versus discretion in a monetary union," European Economic Review, Elsevier, vol. 45(4-6), pages 977-987, May.
    11. Østrup, Finn, 2005. "Fiscal Policy and Welfare under Different Exchange Rate Regimes," Working Papers 2005-1, Copenhagen Business School, Department of Finance.
    12. Luisa Lambertini & Paul Levine & Joseph Pearlman, 2007. "Fiscal Policy in a Monetary Union: Can Fiscal Cooperation be Counterproductive?," School of Economics Discussion Papers 1707, School of Economics, University of Surrey.
    13. L. Marattin & S. Meraglia, 2016. "Potential Output and Fiscal Rules in a Monetary Union under Asymmetric Information 2nd ed," Working Papers wp1063, Dipartimento Scienze Economiche, Universita' di Bologna.
    14. Roberto Tamborini, 2004. "One ‘Monetary Giant’ with Many ‘Fiscal Dwarfs’: The Efficiency of Macroeconomic Stabilization Policies in the European Monetary Union," International Economic Association Series, in: Alan V. Deardorff (ed.), The Past, Present and Future of the European Union, chapter 3, pages 21-47, Palgrave Macmillan.
    15. Damir Šehović, 2013. "General Aspects of Monetary and Fiscal Policy Coordination," Journal of Central Banking Theory and Practice, Central bank of Montenegro, vol. 2(3), pages 5-27.
    16. Russell Cooper & Hubert Kempf & Dan Peled, 2004. "Is it is or is it Ain't my Obligation? Regional Debt in Monetary Unions," NBER Working Papers 10239, National Bureau of Economic Research, Inc.
    17. Giovanni Di Bartolomeo & Debora Di Gioacchino, 2005. "Fiscal-Monetary Policy Coordination And Debt Management: A Two Stage Dynamic Analysis," Macroeconomics 0504024, University Library of Munich, Germany.
    18. Adam Geršl & Martina Jašová & Jan Zápal, 2014. "Fiscal Councils and Economic Volatility," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 64(3), pages 190-212, June.
    19. Lilia Cavallari & Debora Di Gioacchino, 2005. "Macroeconomic Stabilization in the EMU: Rules Versus Institutions," Review of Development Economics, Wiley Blackwell, vol. 9(2), pages 264-276, May.
    20. Paolo Biraschi, "undated". "Searching for the optimal EMU fiscal rule:an ex-post analysis of the SGP reform proposals," Working Papers wp2008-7, Department of the Treasury, Ministry of the Economy and of Finance.
    21. repec:cbk:journl:v:2:y:2013:i:2:p:5-27 is not listed on IDEAS
    22. Russell Cooper & Hubert Kempf, 2003. "Commitment and the Adoption of a Common Currency," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 44(1), pages 119-142, February.

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    JEL classification:

    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions

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