Citation

Discussion Paper Details

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Title: Adjustment Difficulties within a European Monetary Union: Can They be Reduced?

Author(s): Andrew Hughes Hallett and David Vines

Publication Date: March 1991

Keyword(s): EMU and Fiscal Rules

Programme Area(s): International Macroeconomics

Abstract: This paper analyses four costs which may be associated with monetary union. First it (obviously) allows no `relative' monetary accommodation of the kind which may assist when dealing with asymmetric shocks. This can impose significant adjustment costs. Second it does not of itself prevent `absolute' accommodation to an inflation shock originating in all members, or even one member, of the union. Third, the distribution of benefits of membership of the union may be skewed. Finally, a union may require significant fiscal flexibility to mitigate against the adjustment costs. We investigate the form of fiscal flexibility which may be required, and we also propose a form of Soft Monetary Union which might alleviate the first problem.

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Bibliographic Reference

Hughes Hallett, A and Vines, D. 1991. 'Adjustment Difficulties within a European Monetary Union: Can They be Reduced?'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=517