Choosing the Regime in an Uncertain World, the UK and Monetary Union
Ray Barrell,
Ian Hurst and
Tatiana Kirsanova
No 16, Royal Economic Society Annual Conference 2003 from Royal Economic Society
Abstract:
The UK has to take a decision on EMU membership at some point, and the costs and benefits have to be evaluated. Different policy frameworks result in differing outcomes for the means and variances of economic variables such as inflation, output, and nominal and real exchange rates and interest rates. Changing the level of uncertainty in the economy may change the equilibrium level of output and investment. Hence membership of EMU has to be evaluated in the light of its impact on the volatility of target variables and on the impact of volatility on the level of output and welfare. We discuss a theoretical framework within which we can discuss these issues, and we undertake stochastic simulation on a large, New Keynesian model including all the European economies in order to evaluate the effects of membership on the level and volatility of output. Our experiments suggest that membership of EMU would reduce volatility and as a result raise the sustainable level of output and employment in the UK.
Keywords: EMU; exchange rate regimes; uncertainty and investment; UK membership (search for similar items in EconPapers)
JEL-codes: E47 F3 F4 (search for similar items in EconPapers)
Date: 2003-06-04
New Economics Papers: this item is included in nep-ifn and nep-mon
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Working Paper: Choosing the Regime in an Uncertain World: The UK and Monetary Union (2003)
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Persistent link: https://EconPapers.repec.org/RePEc:ecj:ac2003:16
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