Monetary union and macroeconomic stabilization

Dominik Groll

No 1881, Kiel Working Papers from Kiel Institute for the World Economy (IfW Kiel)

Abstract: It is conventionally held that countries are worse off by forming a monetary union when it comes to macroeconomic stabilization. However, this conventional view relies on assuming that monetary policy is conducted optimally. Relaxing the assumption of optimal monetary policy not only uncovers that countries do benefit from forming a monetary union under fairly general conditions. More importantly, it also reveals that a monetary union entails the inherent benefit of stabilizing private-sector expectations about future inflation. As a result, inflation rates are more stable in a monetary union.

Keywords: Monetary union; macroeconomic stabilization; welfare analysis; history dependence; inflation expectations (search for similar items in EconPapers)
JEL-codes: E52 F33 F41 (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:zbw:ifwkwp:1881

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