Joining a Monetary Union: Stabilisation Costs Versus Stabilisation Bias

Marcelo Sánchez ()
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Marcelo Sánchez: European Central Bank, Postal: European Central Bank. Kaiserstrasse 29. D-60311. Frankfurt am Main. Germany

Journal of Economic Integration, 2011, vol. 26, 66-80

Abstract:

Currency union participation may create a welfare tradeoff relating to monetary factors. Stabilisation costs arise from asymmetric shocks across the union. Countries pursuing discretionary national monetary policies benefit from a committed common central bank, which eliminates Svensson’s(1997) stabilisation bias. Currency union membership is favoured by greater price stability focus and commitment of the common central bank, nominal flexibility, and business cycle synchronisation. Monetary union stabilisation performance also improves with lower variability and persistence of cost-push shocks – the latter feature being detectable only for persistence. The degree of monetary policy robustness to parameter uncertainty has somewhat less clear-cut implications.

Keywords: Monetary Union; Asymmetric Shocks; Stabilisation Bias; Conservative Central Bank; Robust Policy (search for similar items in EconPapers)
JEL-codes: E32 E52 E58 (search for similar items in EconPapers)
Date: 2011
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Persistent link: https://EconPapers.repec.org/RePEc:ris:integr:0530

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