Citation

Discussion Paper Details

Please find the details for DP2068 in an easy to copy and paste format below:

Full Details   |   Bibliographic Reference

Full Details

Title: EMU in Reality: The Effect of a Common Monetary Policy on Economies with Different Transmission Mechanisms

Author(s): Andrew Hughes Hallett and Laura Piscitelli

Publication Date: February 1999

Keyword(s): Coordination, monetary policy asymmetries and Transmission Mechanisms

Programme Area(s): International Macroeconomics

Abstract: The theory of optimal currency areas states that a single currency zone should have symmetry of shocks and structures across regions. Research on monetary union in Europe has either assumed these conditions to hold close enough not to cause problems, or has focussed on asymmetries in shocks. But what if economic structures and/or market responses differ between countries or regions? This paper examines the consequences of a single monetary policy when there are asymmetries in a) the monetary transmissions; b) the wage/price transmissions; and c) private sector asset holdings. We find the first and last destabilise the business cycle, and put countries out of phase with one another in a way that cannot be corrected by deficit constrained fiscal policies. The effect is to delay convergence.

For full details and related downloads, please visit: https://cepr.org/active/publications/discussion_papers/dp.php?dpno=2068

Bibliographic Reference

Hughes Hallett, A and Piscitelli, L. 1999. 'EMU in Reality: The Effect of a Common Monetary Policy on Economies with Different Transmission Mechanisms'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=2068