New Empirical Evidence on the Costs of European Monetary Union

Hélène Erkel-Rousse and Jacques Melitz

No 1169, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: In order to assess the costs of a European Monetary Union, we use a structural VAR approach based on the long-run identifying scheme pioneered by Blanchard and Quah and extended by others. We then apply the approach to as many EU members as data limitations permit: namely, Germany, Spain, France, Italy, the Netherlands and the United Kingdom. By identifying a separate shock which would cause exchange rate jumps in the short run, we hope to assess the extent to which such jumps would produce short-run movements in prices as opposed to volumes in each country. Thereby, we hope to see how much sacrifice each EU member would suffer from the surrender of independent monetary policy. Similarly, we try to identify a separate shock to home absorption in order to see how much profit each EU member would have in preserving their fiscal policy independence inside of EMU. The asymmetry between the shocks hitting the country members of a monetary union remains an issue in the paper; but it is only one of several.

Keywords: European Monetary Union; Optimum Currency Areas; Structural VAR (search for similar items in EconPapers)
JEL-codes: F02 F15 F40 (search for similar items in EconPapers)
Date: 1995-05
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