Discussion Paper Details
Please find the details for DP1804 in an easy to copy and paste format below:
Title: A Red Letter Day?
Author(s): Rudiger Dornbusch, Carlo A. Favero and Francesco Giavazzi
Publication Date: March 1998
Keyword(s): credit channel, European Central Bank, European Monetary Union and monetary conditions index
Programme Area(s): International Macroeconomics
Abstract: This paper discusses a number of issues that the newly constituted board of the European Central Bank (ECB) will face early on. We show how conducting a European monetary policy is very different from living under the protective umbrella of the Bundesbank. We discuss voting on the ECB board, and argue that the ability to communicate to the public will be a critical factor for the success of the new institution. We also ask how a single monetary policy ? a common change in the interest rate controlled by the ECB ? is transmitted to the economy of the member countries. We show that the monetary process differs significantly inside EMU: initially, at least, the cost of a disinflation episode could thus fall very unequally on a few member countries because they have a combination of financial structure that spreads a monetary contraction widely, and a wage-price structure that is relatively inflexible. Moreover, this process is sure to evolve, in part, as a result of the financial industry restructuring that is already underway and will be accentuated by the common money. Furthermore, as the ?Lucas principle? suggests, the wage-price process itself will adapt to the changing focus of European monetary policy.
For full details and related downloads, please visit: https://cepr.org/active/publications/discussion_papers/dp.php?dpno=1804
Dornbusch, R, Favero, C and Giavazzi, F. 1998. 'A Red Letter Day?'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=1804