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An Estimated Two-Country DSGE Model: losses from UK membership in EMU

Author

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  • Moons, Cindy

    (Hogeschool-Universiteit Brussel (HUB), Belgium)

Abstract

Given the importance of a high degree of homogeneity between the members states of the EMU, one of the research questions that this paper aims at answering is in determining the degree of heterogeneity between the UK and the EA. Furthermore, it is analyzed how an hypothetical membership of the UK affects the volatility of output and inflation in both economies. In addition, it is investigated whether changes in the objective function of the ECB, or more or less active fiscal policy, can decrease the losses of a membership. Overall, the results point at a high degree of homogeneity in de conduct of monetary and fiscal policy in both economies. However, results also point at heterogeneity in consumer behavior. While a membership would increase UK losses significantly, results show that automatic stabilizers can play an important role in reducing these losses.

Suggested Citation

  • Moons, Cindy, 2009. "An Estimated Two-Country DSGE Model: losses from UK membership in EMU," Working Papers 2009/23, Hogeschool-Universiteit Brussel, Faculteit Economie en Management.
    • Handle: RePEc:hub:wpecon:200923
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    References listed on IDEAS

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    More about this item

    Keywords

    Fiscal Policy; Monetary Policy;

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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