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European Monetary Union, Asymmetric Shocks and Inertia

Rebecca Driver and Simon Wren-Lewis ()

Discussion Papers from University of Exeter, Department of Economics

Abstract: This paper assesses the scale of the costs of European Monetary Union when shocks are asymmetric. This is done considering time consistent policies within a small theoretical two country model, with parameter values chosen from empirical work. The model builds on earlier work by incoporating a forward looking inflation mechanism. Our results suggest that there are significant costs associated with Monetary Union, particularly when fiscal policy is not used as a stabilisation tool.

Keywords: European Monetary Union; Asymmetric shocks; Inertia (search for similar items in EconPapers)
JEL-codes: F33 F41 F42 (search for similar items in EconPapers)
Date: 1996
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