DP219 Monetary Discipline and Cooperation in the European Monetary System: A Synthesis

Author(s): Jacques Melitz
Publication Date: January 1988
Keyword(s): Competitiveness, European Monetary System, Incentives, Monetary Discipline
JEL(s): 112, 311, 423, 431, 432
Programme Areas: International Macroeconomics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=219

This paper tries to explain how, despite its fundamental asymmetry, the European Monetary System may benefit all its members. I argue that the high-inflation members obtain benefits of increased monetary discipline, while the others experience improvements in their international competitiveness. For the low-inflation members, moreover, the incentive to disinflate increases as a result of EMS membership. Finally, the benefits of membership for low-inflation countries are secure; for those with higher inflation, the gains from membership depend on a variety of factors whose net effect is uncertain.