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Is There a Conflict Between EC Enlargement and European Monetary Unification?


  • Tamim Bayoumi
  • Barry Eichengreen


Recent proposals for enlarging the European Community to include the EFTA countries raise the question of whether the new members should participate in a European Monetary Union. In part, the issue hinges on the incidence of aggregate supply and demand disturbances. We use data on prices and output and a VAR decomposition to analyze this issue empirically, grouping economies according to the magnitude of the disturbances, their cross-country correlation, and speeds of response. This leads us to distinguish an EC "core" (made up of Germany and its immediate neighbors) and an EC periphery (made up of the UK and the Southern European members of the Community). Austria, Sweden and Switzerland behave more similarly to the EC core than do Norway, Finland and Iceland. This suggests that the case for EMU participation is stronger for Austria, Sweden and Switzerland than for the other EFTA countries.

Suggested Citation

  • Tamim Bayoumi & Barry Eichengreen, 1992. "Is There a Conflict Between EC Enlargement and European Monetary Unification?," NBER Working Papers 3950, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:3950
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    References listed on IDEAS

    1. Eichengreen, Barry, 1990. "Is Europe an Optimum Currency Area?," Department of Economics, Working Paper Series qt40m5g6pp, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
    2. Tamim Bayoumi & Barry Eichengreen, 1992. "Shocking Aspects of European Monetary Unification," NBER Working Papers 3949, National Bureau of Economic Research, Inc.
    3. Gylfason, Thorvaldur, 1991. "Iceland on the Outskirts of Europe: The Common Property Resource Problem," CEPR Discussion Papers 530, C.E.P.R. Discussion Papers.
    4. Lippi, Marco & Reichlin, Lucrezia, 1993. "The Dynamic Effects of Aggregate Demand and Supply Disturbances: Comment," American Economic Review, American Economic Association, vol. 83(3), pages 644-652, June.
    5. Morris Goldstein & Geoffrey Woglom, 1991. "Market-Based Fiscal Discipline in Monetary Unions; Evidence From the U.S. Municipal Bond Market," IMF Working Papers 91/89, International Monetary Fund.
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    Cited by:

    1. Frankel, Jeffrey A & Rose, Andrew K, 1998. "The Endogeneity of the Optimum Currency Area Criteria," Economic Journal, Royal Economic Society, vol. 108(449), pages 1009-1025, July.
    2. Bayoumi, Tamim & Eichengreen, Barry, 1994. "Macroeconomic Adjustment under Bretton Woods and the Post-Bretton-Woods Float: An Impulse-Response Analysis," Economic Journal, Royal Economic Society, vol. 104(425), pages 813-827, July.
    3. Frankel, J-A & Rose, A-K, 1996. "Economic Structure and the Decision to Adopt a Common Currency," Papers 611, Stockholm - International Economic Studies.
    4. George Tavlas, 1994. "The theory of monetary integration," Open Economies Review, Springer, vol. 5(2), pages 211-230, March.
    5. Weimann, Marco, 2002. "OCA theory and EMU eastern enlargement: An empirical application," Dresden Discussion Paper Series in Economics 07/02, Technische Universität Dresden, Faculty of Business and Economics, Department of Economics.
    6. Bordo, Michael D. & Jonung, Lars, 1994. "Monetary Regimes, Inflation and Monetary Reform: An Essay in Honor of Axel Leijonhufvud," SSE/EFI Working Paper Series in Economics and Finance 16, Stockholm School of Economics.
    7. Daniel Laskar, 1993. "Union monétaire : différences structurelles et asymétrie des chocs," Revue Économique, Programme National Persée, vol. 44(6), pages 1045-1070.
    8. Stazka, Agnieszka, 2008. "International parity relations between Poland and Germany: a cointegrated VAR approach," MPRA Paper 24057, University Library of Munich, Germany.
    9. Laurence Boone, 1997. "Symmetry and Asymmetry of Supply and Demand Shocks in the European Union," Working Papers 1997-03, CEPII research center.
    10. Helene Schuberth & Gert Wehinger, 1998. "Costs of European Monetary Union: Evidence of monetary and fiscal policy effectiveness," ERSA conference papers ersa98p459, European Regional Science Association.
    11. Jean Pisani-Ferry, 1995. "L'Europe à géométrie variable, une analyse économique," Working Papers 1995-04, CEPII research center.
    12. Helene Schuberth, 1998. "Room for manoeuvre of economic policy in EU countries are there costs of joining EMU?," Working Papers 35, Oesterreichische Nationalbank (Austrian Central Bank).
    13. Jean Pisani-Ferry, 1997. "Intégration monétaire et géométrie variable," Revue Économique, Programme National Persée, vol. 48(3), pages 495-504.
    14. Boone, Laurence & Maurel, Mathilde, 1999. "An Optimal Currency Area Perspective of the EU Enlargement to the CEECs," CEPR Discussion Papers 2119, C.E.P.R. Discussion Papers.
    15. Michael D. Bordo & Anna J. Schwartz, 1994. "The Specie Standard as a Contingent Rule: Some Evidence for Core and Peripheral Countries, 1880-1990," NBER Working Papers 4860, National Bureau of Economic Research, Inc.
    16. Vassili Prokopenko & Etibar Jafarov & Anne Marie Gulde, 2004. "A Common Currency for Belarus and Russia?," IMF Working Papers 04/228, International Monetary Fund.
    17. Gerlach, Stefan, 1995. "Adjustable pegs vs. single currencies: How valuable is the option to realign?," European Economic Review, Elsevier, vol. 39(6), pages 1155-1170, June.
    18. Michael D. Bordo, 1993. "The gold standard, Bretton Woods and other monetary regimes: a historical appraisal," Review, Federal Reserve Bank of St. Louis, issue Mar, pages 123-191.

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    JEL classification:

    • F3 - International Economics - - International Finance

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