HETEROGENEITY IN A CURRENCY UNION WITH SOCIAL MARKET OBJECTIVES

Andrew Hughes Hallett and Diana N. Weymark

Scottish Journal of Political Economy, 2006, vol. 53, issue 1, 129-152

Abstract: In this paper, we explore whether heterogeneity among union members could threaten the stability of the European Monetary Union. 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 can be significant for countries whose transmissions, structure, 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.

Date: 2006
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https://doi.org/10.1111/j.1467-9485.2005.00373.x

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Persistent link: https://EconPapers.repec.org/RePEc:bla:scotjp:v:53:y:2006:i:1:p:129-152

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Scottish Journal of Political Economy is currently edited by Tim Barmby, Andrew Hughes-Hallett and Campbell Leith

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