The U.K. Business Cycle, Monetary Policy, and EMU Entry

Hossein Samiei and Zenon Kontolemis

No 2000/210, IMF Working Papers from International Monetary Fund

Abstract: In the context of the U.K. government’s EMU entry condition of cyclical convergence, this paper (i) provides further evidence suggesting that historically the U.K.’s business cycle has been more volatile than, and relatively independent of, the cycles in the euro-area countries; and (ii) identifies, using a small VAR model, a relatively significant role for monetary policy in explaining these differences. A simulation exercise suggests that if the U.K. interest rates had been more closely aligned with those in the euro area in the 1990s (as they would be if the United Kingdom were to join EMU), output growth might have been less volatile and more correlated with that in the euro area, but inflationary pressures might have persisted.

Keywords: WP; exchange rate; monetary policy; business cycles; EMU; U.K. business cycle; growth cycle; U.K. economy; U.K. interest rate; U.K. government; Exchange rates; Inflation; Real effective exchange rates; Output gap; North America; Europe (search for similar items in EconPapers)
Pages: 26
Date: 2000-12-01
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Citations: View citations in EconPapers (13)

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