EMU in Reality: The Effect of a Common Monetary Policy on Economies with Different Transmission Mechanisms

Andrew Hughes Hallett and Laura Piscitelli

No 2068, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: The theory of optimal currency areas states that a single currency zone should have symmetry of shocks and structures across regions. Research on monetary union in Europe has either assumed these conditions to hold close enough not to cause problems, or has focussed on asymmetries in shocks. But what if economic structures and/or market responses differ between countries or regions? This paper examines the consequences of a single monetary policy when there are asymmetries in a) the monetary transmissions; b) the wage/price transmissions; and c) private sector asset holdings. We find the first and last destabilise the business cycle, and put countries out of phase with one another in a way that cannot be corrected by deficit constrained fiscal policies. The effect is to delay convergence.

Keywords: Coordination; monetary policy asymmetries; Transmission Mechanisms (search for similar items in EconPapers)
JEL-codes: E52 E61 F42 (search for similar items in EconPapers)
Date: 1999-02
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (17)

Downloads: (external link)
http://www.cepr.org/active/publications/discussion_papers/dp.php?dpno=2068 (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:
Journal Article: EMU in Reality: The Effect of a Common Monetary Policy on Economies with Different Transmission Mechanisms (1999)
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:cpr:ceprdp:2068

Ordering information: This working paper can be ordered from
http://www.cepr.org/ ... ers/dp.php?dpno=2068

Access Statistics for this paper

More papers in CEPR Discussion Papers from C.E.P.R. Discussion Papers Centre for Economic Policy Research, 33 Great Sutton Street, London EC1V 0DX.
Bibliographic data for series maintained by ().