Monetary Policies in an Enlarged Euroland
This paper analyses the effects of enlarging the initial Euroland of eleven members to one including all the fifteen member states of the European Union. The analysis is done in terms of consequences in the decision-making process and in welfare. In the framework of the model developed by Rudebush and Svensson (1998), and defining two decision rules and two benchmark cases, we find that the addition of the four outsiders does not reduce significantly the strategic position of the ECB-Board in deciding upon monetary policy issues in Euroland. Furthermore, Denmark, Greece and Sweden gain welfare when they enter the Eurosystem, while the UK loses welfare in EMU. The welfare of initial member countries is not much affected by the enlargement, although a majority of them experience slight welfare gains.
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