Exclusions from EMU

Athena Yannis and Kostos Foscoulou

MPRA Paper from University Library of Munich, Germany

Abstract: In contrast to the traditional analysis, we analyze the costs associated not with the inclusion but excluding a country of the European Economic and Monetary Union (EMU) In a three-country model, we show that the monetary policy of the country excluded will be more expansionary and more counter-cyclical than that of the EMU countries, which brings it closer to a strategy of competitive depreciation. The country whose shocks are the most symmetrical to those of the excluded country will be the most affected by this exclusion seeing the variance of its production increase We also examine the various proposals for managing relations between EMU and the non-EMU countries of the EU. Contrary in traditional analysis, we analyze the costs not associated with the inclusion but excluding a country of the European Economic and Monetary Union (EMU). In a three-country model, we show that the monetary policy of the excluded country will be more expansionary and counter-cyclical than that of the EMU countries, bringing it closer to a competitive depreciation strategy. The country whose shocks are most symmetrical to those of the excluded country will be the most affected by this exclusion seeing the variance of its production increase. We also examine the various proposals for managing relations between EMU and non-EMU countries.

Keywords: EMU (search for similar items in EconPapers)
JEL-codes: F36 (search for similar items in EconPapers)
Date: 2004-07-02
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Published in European Political Economy Review Summer.3(2004): pp. 87-95

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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:90307

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