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The Effects of Joining a Monetary Union on Output and Inflation Variability in Accession Countries

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  • Holtemöller, Oliver

Abstract

New EU member countries are supposed to adopt the Euro as soon as economic convergence is achieved. This paper analyzes the effects of joining a monetary union on output and inflation variability in small acceding countries. An asymmetric macroeconomic two-country model is specified and combined with two different monetary policy regimes: (i) national monetary policy, (ii) monetary union. The performance of the two regimes is analyzed in terms of inflation and output variability for a broad range of structural parameter specifications.

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File URL: https://mpra.ub.uni-muenchen.de/8633/1/MPRA_paper_8633.pdf
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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 8633.

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Date of creation: 14 Dec 2007
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Handle: RePEc:pra:mprapa:8633
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Keywords: European monetary union; open economy macroeconomic models; optimal monetary policy;

Find related papers by JEL classification:

  • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission
  • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
  • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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  1. Clarida, Richard & Galí, Jordi & Gertler, Mark, 2002. "A Simple Framework for International Monetary Policy Analysis," CEPR Discussion Papers 3355, C.E.P.R. Discussion Papers.
  2. McCallum, Bennett T. & Nelson, Edward, 1998. "Nominal Income Targeting in an Open-Economy Optimizing Model," Seminar Papers 644, Stockholm University, Institute for International Economic Studies.
  3. Bennett T. McCallum & Edward Nelson, 2001. "Monetary Policy for an Open Economy: An Alternative Framework with Optimizing Agents and Sticky Prices," NBER Working Papers 8175, National Bureau of Economic Research, Inc.
  4. Wollmershäuser, Timo, 2006. "Should central banks react to exchange rate movements? An analysis of the robustness of simple policy rules under exchange rate uncertainty," Munich Reprints in Economics 19716, University of Munich, Department of Economics.
  5. Richard Clarida & Jordi Gali & Mark Gertler, 2001. "Optimal Monetary Policy in Open versus Closed Economies: An Integrated Approach," American Economic Review, American Economic Association, vol. 91(2), pages 248-252, May.
  6. Jordi Galí & Tommaso Monacelli, 2004. "Monetary policy and exchange rate volatility in a small open economy," Economics Working Papers 835, Department of Economics and Business, Universitat Pompeu Fabra.
  7. Pappa, Evi, 2004. "Do the ECB and the fed really need to cooperate? Optimal monetary policy in a two-country world," Journal of Monetary Economics, Elsevier, vol. 51(4), pages 753-779, May.
  8. Yongseung Jung & Woon Gyu Choi, 2003. "Optimal Monetary Policy in a Small Open Economy with Habit Formation and Nominal Rigidities," IMF Working Papers 03/5, International Monetary Fund.
  9. Galí, Jordi & Gertler, Mark & López-Salido, J David, 2001. "European Inflation Dynamics," CEPR Discussion Papers 2684, C.E.P.R. Discussion Papers.
  10. Taylor, John B., 1993. "Discretion versus policy rules in practice," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 39(1), pages 195-214, December.
  11. Øistein RØisland & Ragnar Torvik, 2003. "Optimum Currency Areas Under Inflation Targeting," Open Economies Review, Springer, vol. 14(2), pages 99-118, April.
  12. Galí, Jordi, 2002. "New Perspectives on Monetary Policy, Inflation and the Business Cycle," CEPR Discussion Papers 3210, C.E.P.R. Discussion Papers.
  13. Robert Kollmann, 2004. "Welfare Effects of a Monetary Union: The Role of Trade Openness," Journal of the European Economic Association, MIT Press, vol. 2(2-3), pages 289-301, 04/05.
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Cited by:

  1. Alexandra Ferreira-Lopes, 2014. "The Welfare Cost of the EMU for Transition Countries," Prague Economic Papers, University of Economics, Prague, vol. 2014(4), pages 446-473.
  2. Ferreira-Lopes, Alexandra, 2010. "In or out? The welfare costs of EMU membership," Economic Modelling, Elsevier, vol. 27(2), pages 585-594, March.

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