Citation

Discussion Paper Details

Please find the details for DP5615 in an easy to copy and paste format below:

Full Details   |   Bibliographic Reference

Full Details

Title: Joining the European Monetary Union - Comparing First and Second Generation Open Economy Models

Author(s): Vo Phuong Mai Le and Patrick Minford

Publication Date: April 2006

Keyword(s): asymmetry, monetary union, multi-country model, representative agent model and wage rigidity

Programme Area(s): International Macroeconomics

Abstract: We log-linearise the Dellas and Tavlas (DT) model of monetary union and solve it analytically. We find that the intuition of optimal currency analysis of DT's second generation open economy model is essentially the same as that of first generation models. Monetary union results in no welfare loss if its member states are symmetric. However, asymmetry causes loss in welfare both due to the failure of the union policy to deal suitably with a country's asymmetric shocks and due to an active monetary policy by union in pursuit of its distinct objectives. The asymmetry in DT is largely due to the differing wage rigidities across countries.

For full details and related downloads, please visit: https://cepr.org/active/publications/discussion_papers/dp.php?dpno=5615

Bibliographic Reference

Le, V and Minford, P. 2006. 'Joining the European Monetary Union - Comparing First and Second Generation Open Economy Models'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=5615