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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
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  18. De Grauwe, Paul, 1995. "Alternative strategies towards monetary union," European Economic Review, Elsevier, vol. 39(3-4), pages 483-491, April.
  19. Ramana Ramaswamy & Torsten Sløk, 1998. "The Real Effects of Monetary Policy in the European Union: What Are the Differences?," IMF Staff Papers, Palgrave Macmillan, vol. 45(2), pages 374-396, June.
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