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The Cost of Heterogeneity in a Monetary Union

  • Andrew Hughes Hallett

    ()

    (Department of Economics, Vanderbilt University and University of Strathclyde, UK)

  • Diana N. Weymark

    ()

    (Department of Economics, Vanderbilt Unviersity)

In this paper, we explore whether heterogeneity among union members could threaten the stability of the EMU. The types of heterogeneity we consider are (1) asymmetries in the transmission of monetary and fiscal policies, and (2) differences in national preferences for price stability, output growth, and income redistribution. Our results show that the costs of membership are cumulative and can be significant for countries whose structure and/or preferences deviate from those underlying the common monetary policy. In part, these costs arise because monetary policy imposed by an independent central bank automatically constrains the use of fiscal policy by national governments.

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Paper provided by Vanderbilt University Department of Economics in its series Vanderbilt University Department of Economics Working Papers with number 0128.

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Date of creation: Dec 2001
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Handle: RePEc:van:wpaper:0128
Contact details of provider: Web page: http://www.vanderbilt.edu/econ/wparchive/index.html

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  7. Demertzis, Maria & Hughes Hallett, Andrew & Viegi, Nicola, 2004. "An independent central bank faced with elected governments," European Journal of Political Economy, Elsevier, vol. 20(4), pages 907-922, November.
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  18. Gerald A. Carlino & Robert DeFina, 1998. "Monetary policy and the U.S. and regions: some implications for European Monetary Union," Working Papers 98-17, Federal Reserve Bank of Philadelphia.
  19. Mads Kieler & Tuomas Saarenheimo, 1998. "Differences in monetary policy transmission? A case not closed," European Economy - Economic Papers 132, Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission.
  20. Calmfors, Lars, 1998. "Macroeconomic Policy, Wage Setting, and Employment--What Difference Does the EMU Make?," Oxford Review of Economic Policy, Oxford University Press, vol. 14(3), pages 125-51, Autumn.
  21. Calmfors, Lars, 1998. "Macroeconomic Policy, Wage Setting and Employment - What Difference Does the EMU Make?," Seminar Papers 657, Stockholm University, Institute for International Economic Studies.
  22. Dave Turner & Elena Seghezza, 1999. "Testing for a Common OECD Phillips Curve," OECD Economics Department Working Papers 219, OECD Publishing.
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