A Red Letter Day?

Rudiger Dornbusch, Carlo Favero () and Francesco Giavazzi ()

No 1804, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: This paper discusses a number of issues that the newly constituted board of the European Central Bank (ECB) will face early on. We show how conducting a European monetary policy is very different from living under the protective umbrella of the Bundesbank. We discuss voting on the ECB board, and argue that the ability to communicate to the public will be a critical factor for the success of the new institution. We also ask how a single monetary policy – a common change in the interest rate controlled by the ECB – is transmitted to the economy of the member countries. We show that the monetary process differs significantly inside EMU: initially, at least, the cost of a disinflation episode could thus fall very unequally on a few member countries because they have a combination of financial structure that spreads a monetary contraction widely, and a wage-price structure that is relatively inflexible. Moreover, this process is sure to evolve, in part, as a result of the financial industry restructuring that is already underway and will be accentuated by the common money. Furthermore, as the ‘Lucas principle’ suggests, the wage-price process itself will adapt to the changing focus of European monetary policy.

Keywords: credit channel; European Central Bank; European Monetary Union; monetary conditions index (search for similar items in EconPapers)
JEL-codes: E5 E58 (search for similar items in EconPapers)
Date: 1998-03
View citations in EconPapers

Downloads: (external link)
http://www.cepr.org/pubs/dps/DP1804.asp (application/pdf)
CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: http://EconPapers.repec.org/RePEc:cpr:ceprdp:1804

Ordering information: This working paper can be ordered from
http://www.cepr.org/pubs/dps/DP1804.asp

Access Statistics for this paper

More papers in CEPR Discussion Papers from C.E.P.R. Discussion Papers
Address: Centre for Economic Policy Research, 53--56 Great Sutton Street, London EC1V 0DG
Series data maintained by ().