International Policy Transmissions Before and After Establishing a Monetary Union

Fabio Rumler

No 71, Economics Series from Institute for Advanced Studies

Abstract: This paper analyzes the effects of the implementation of a monetary union on the international transmission of monetary and fiscal policies. A dynamic three-country general equilibrium model, exhibiting monopolistic competition and sticky prices, is used to show how asymmetric monetary and fiscal policy shocks affect the production and consumption decisions in the three countries. The international effects of asymmetric monetary and fiscal policy shocks are then compared with respect to the two situations - before and after the implementation of a (two-country) monetary union. It is shown that all key economic variables of the two countries forming a monetary union react completely symmetrically to no longer independent monetary and fiscal policy shocks. Even the fiscal policies of the countries forming a monetary union themselves turn out to become symmetric, although, in principle, there is no particular need for government spending levels to be fully synchronized within a monetary union.

Keywords: Macroeconomic policy transmissions; Exchange rate arrangements; EMU (search for similar items in EconPapers)
JEL-codes: E63 F33 F42 (search for similar items in EconPapers)
Pages: 26 pages
Date: 1999-09
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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https://irihs.ihs.ac.at/id/eprint/1192 First version, 1999 (application/pdf)

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