Leader of the pack? German monetary dominance in Europe prior to EMU

J Reade and Ulrich Volz

Economic Modelling, 2011, vol. 28, issue 1, 239-250

Abstract: In this paper, the monetary policy independence of European nations in the years before European Economic and Monetary Union (EMU) is investigated using cointegration techniques. Daily data is used to assess pairwise relationships between individual EMU nations and ‘lead’ nation Germany, to assess the hypothesis that Germany was the dominant European nation prior to EMU. By and large our econometric investigations support this hypothesis, and lead us to conclude that the only European nation to lose monetary policy independence in the light of monetary union was Germany. Our results have important policy implications. Given that the loss of monetary policy independence is generally viewed as the main cost of monetary unification, our findings suggest a reconsideration of the costs and benefits of monetary integration. A country can only lose what it has, and in Europe the countries that joined EMU — spare Germany — apparently did not have much to lose, at least not in terms of monetary independence. Instead, they actually gained monetary policy influence by getting a seat in the ECB's governing council which is responsible for setting interest policy in the euro area.

Keywords: Monetary policy independence; European monetary integration; Cointegrated VAR method (search for similar items in EconPapers)
JEL-codes: C32 E52 E58 F41 F42 (search for similar items in EconPapers)
Date: 2011
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (14)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0264999310001835
Full text for ScienceDirect subscribers only

Related works:
Journal Article: Leader of the pack? German monetary dominance in Europe prior to EMU (2011)
Working Paper: Leader of the Pack? German Monetary Dominance in Europe Prior to EMU (2009)
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: https://EconPapers.repec.org/RePEc:eee:ecmode:v:28:y:2011:i:1:p:239-250

DOI: 10.1016/j.econmod.2010.09.006

Access Statistics for this article

Economic Modelling is currently edited by S. Hall and P. Pauly

More articles in Economic Modelling from Elsevier
Bibliographic data for series maintained by Catherine Liu ().