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The road to adopting the euro: monetary policy and exchange rate regimes in EU candidate countries
This paper examines the choice of exchange rate regime in EU candidate countries during the process of accession to the European Monetary Union (EMU). In the presence of real exchange rate appreciation due to the Balassa-Samuelson effect, candidate countries face a trade-off between trend appreciation of the nominal exchange rate and high inflation rates. In a general equilibrium model of an emerging market economy, we show that under a fixed or heavily managed exchange rate the Balassa-Samuelson effect might prevent compliance with the Maastricht inflation criterion, unless a contractionary ...
Opening remarks for the Transatlantic Economic Interdependence and Policy Challenges Conference
Remarks at the Transatlantic Economic Interdependence and Policy Challenges Conference, Federal Reserve Bank of New York, New York City.
Equal size, equal role? interest rate interdependence between the euro area and the United States
This paper investigates whether the degree and the nature of economic and monetary policy interdependence between the United States and the euro area have changed with the advent of EMU. Using real-time data, it addresses this issue from the perspective of financial markets by analysing the effects of monetary policy announcements and macroeconomic news on daily interest rates in the United States and the euro area. First, the paper finds that the interdependence of money markets has increased strongly around EMU. Although spillover effects from the United States to the euro area remain ...
One-size-fits-all monetary policy: Europe and the U.S.
The ongoing euro-area crisis is seen by many as vindication of skeptics who said that a monetary union encompassing a disparate group of countries is doomed to fail because the countries do not constitute what economists call an optimum currency area. Thus, they argued, a one-size-fits-all monetary policy that goes with participation in an alliance such as the European Economic and Monetary Union (EMU) creates strains that ultimately prove insurmountable.
E pluribus EMU? how will Europe cope with a single currency?
Fiscal policy in monetary unions: implications for Europe
This paper analyzes how the feasible mix of government expenditure and financing arrangements may change with the establishment of a monetary union such as that planned by members of the European Community. We find that a monetary union reduces the feasible divergence across countries in their present discounted levels of fiscal spending. Wide differences across countries in their present and future time pattern of spending are still possible, however. Examination of the empirical evidence suggests that the movement towards greater exchange rate fixity associated with the EMS and ...