Joining the Euro - the Macro Effects on the UK Economy

A. Patrick Minford, Bruce Webb and David Meenagh

No 3602, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: Stochastic simulations are used on the Liverpool Model of the UK to assess the effect of macroeconomic stability of the UK adopting the Euro. Instability increases substantially, particularly for inflation and real interest rates. A key factor is the extent of the Euro's instability against the dollar; by adopting a regional currency the UK imports this source of shocks, as well as losing its control of interest rates. The results are not highly sensitive to changes in assumptions about the degree of labour market flexibility, the use of fiscal policy, and increased convergence of monetary transmission.

Keywords: Euro; Floating; Single currency; Exchange rate instability; Business cycle; Transmission mechanisms (search for similar items in EconPapers)
JEL-codes: E42 (search for similar items in EconPapers)
Date: 2002-10
New Economics Papers: this item is included in nep-eec, nep-ifn and nep-mac
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