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Macroeconomic policy effects in a monetary union

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  • Patricia S. Pollard

Abstract

This paper develops a two-country model of a monetary union. In order to analyze fully the linkages between the countries, the model specifies structural equations for the goods, money and bond markets in each country. Interdependencies arise through trade, the asset markets, and a common currency. The model also includes a supply side for each economy based on an expectations augmented Phillips curve. Using this model it is possible to trace the shifts in aggregate demand and aggregate supply in both countries resulting from a change in fiscal and monetary policies. The results suggest that given asymmetries in current account balances, fiscal policies may cause friction among countries in a European monetary union.

Suggested Citation

  • Patricia S. Pollard, 1993. "Macroeconomic policy effects in a monetary union," Working Papers 1993-001, Federal Reserve Bank of St. Louis.
  • Handle: RePEc:fip:fedlwp:1993-001
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    References listed on IDEAS

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    1. Willem H. Buiter, 1988. "Macroeconomic Policy Design in an Interdependent World Economy: An Analysis of Three Contingencies," NBER Chapters,in: International Aspects of Fiscal Policies, pages 121-172 National Bureau of Economic Research, Inc.
    2. Bayoumi, Tamim & Eichengreen, Barry, 1992. "Shocking Aspects of Monetary Unification," Department of Economics, Working Paper Series qt791143kp, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
    3. Linda Kole, 1988. "Expansionary Fiscal Policy and International Interdependence," NBER Chapters,in: International Aspects of Fiscal Policies, pages 229-272 National Bureau of Economic Research, Inc.
    4. Tamim Bayoumi & Barry Eichengreen, 1992. "Shocking Aspects of European Monetary Unification," NBER Working Papers 3949, National Bureau of Economic Research, Inc.
    5. Portes, Richard, 1989. "Macroeconomic Policy Coordination and the European Monetary System," CEPR Discussion Papers 342, C.E.P.R. Discussion Papers.
    6. Buiter, Willem H. & Kletzer, Kenneth, 1990. "Reflections on the Fiscal Implications of a Common Currency," CEPR Discussion Papers 418, C.E.P.R. Discussion Papers.
    7. Oudiz, Gilles, 1985. "European Policy Coordination: An Evaluation," CEPR Discussion Papers 81, C.E.P.R. Discussion Papers.
    8. Gilles Oudiz & Jeffrey Sachs, 1984. "Macroeconomic Policy Coordination among the Industrial Economies," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 15(1), pages 1-76.
    9. Reuven Glick & Michael M. Hutchison, 1992. "Budget rules and monetary union in Europe," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, issue sep18.
    10. Cohen, Daniel & Wyplosz, Charles, 1989. "The European Monetary Union: An Agnostic Evaluation," CEPR Discussion Papers 306, C.E.P.R. Discussion Papers.
    11. Charles R. BEAN, 1985. "Macroeconomic Policy Co-ordination: Theory and Evidence," Discussion Papers (REL - Recherches Economiques de Louvain) 1985034, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
    12. Cohen, Daniel, 1989. "Monetary and fiscal policy in an open economy with or without policy coordination," European Economic Review, Elsevier, vol. 33(2-3), pages 303-309, March.
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    Keywords

    Macroeconomics;

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