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Are there adverse real effects from monetary policy coordination? Some evidence from Austria, Belgium and the Netherlands

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  • John A. Tatom
  • Dieter Proske

Abstract

A central hypothesis and concern of some skeptics of European monetary union is that monetary policy coordination to secure a peg to the German mark (DM) will tie real economic performance, especially the unemployment rate, to that in Germany. Evidence on this hypothesis can be found in Austria, Belgium and the Netherlands, however, where currencies have been tightly pegged to the mark since 1979, 1986 and 1984, respectively. This paper reviews the theoretical link between a country's real performance and its coordination with foreign economic policy. It uses the three countries' Phillips curves to gauge real economic performance; it tests whether Phillips curve parameters have shifted adversely following the introduction of the DM-peg and whether any such shift is related to German unemployment rate movements. The article concludes that coordination does not have adverse economic effects on real economic performance.

Suggested Citation

  • John A. Tatom & Dieter Proske, 1994. "Are there adverse real effects from monetary policy coordination? Some evidence from Austria, Belgium and the Netherlands," Working Papers 1994-018, Federal Reserve Bank of St. Louis.
  • Handle: RePEc:fip:fedlwp:1994-018
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    References listed on IDEAS

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    1. Barro, Robert J. & Gordon, David B., 1983. "Rules, discretion and reputation in a model of monetary policy," Journal of Monetary Economics, Elsevier, vol. 12(1), pages 101-121.
    2. Francesco Giavazzi & Marco Pagano, 1991. "The Advantage of Tying One's Hands: EMS Discipline and Central Bank Credibility," NBER Chapters,in: International Volatility and Economic Growth: The First Ten Years of The International Seminar on Macroeconomics, pages 303-330 National Bureau of Economic Research, Inc.
    3. Brunner, Karl & Meltzer, Allan H., 1976. "The Phillips curve," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 1(1), pages 1-18, January.
    4. Brunner, Karl & Meltzer, Allan H., 1988. "Stabilization policies and labor markets," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 28(1), pages 1-8, January.
    5. Alogoskoufis, George S & Smith, Ron, 1991. "The Phillips Curve, the Persistence of Inflation, and the Lucas Critique: Evidence from Exchange-Rate Regimes," American Economic Review, American Economic Association, vol. 81(5), pages 1254-1275, December.
    6. Heinz Gluck & Dieter Proske & John A. Tatom, 1992. "Monetary and exchange rate policy in Austria: an early example of policy coordination," Working Papers 1992-005, Federal Reserve Bank of St. Louis.
    7. Giersch, Herbert, 1985. "Eurosclerosis," Kiel Discussion Papers 112, Kiel Institute for the World Economy (IfW).
    8. George A. Kahn, 1987. "International policy coordination in an interdependent world," Economic Review, Federal Reserve Bank of Kansas City, issue Mar, pages 14-32.
    9. Lucas, Robert Jr, 1976. "Econometric policy evaluation: A critique," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 1(1), pages 19-46, January.
    10. Shapiro, Carl & Stiglitz, Joseph E, 1984. "Equilibrium Unemployment as a Worker Discipline Device," American Economic Review, American Economic Association, vol. 74(3), pages 433-444, June.
    11. Pagan, Adrian, 1984. "Econometric Issues in the Analysis of Regressions with Generated Regressors," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 25(1), pages 221-247, February.
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    Keywords

    Monetary policy ; Austria ; Belgium ; Netherlands ; Foreign exchange rates;

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