Welfare implications of joining a common currency

Arbeitspapier

This paper examines the welfare implications of a country joining a currency union as opposed to operating in a flexible exchange rate regime. At the country level, the suboptimal response to domestic and foreign shocks and the inability of setting inflation at the desired level may be offset by a positive impact on potential output. We show that for entry to be welfare enhancing, the potential output gain must be the larger, the smaller the country, the larger the difference between the standard deviation of supply shocks across the participating countries, the smaller the correlation of countries’ supply shocks and the larger the variance of real exchange rate shocks.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: ECB Working Paper ; No. 445

Classification and Topics

• Classification: Wirtschaft ; Monetary Policy ; Central Banks and Their Policies ; International Monetary Arrangements and Institutions ; Macroeconomic Aspects of International Trade and Finance: General
• Subject: Balassa-Samuelson Effect ; Currency union ; monetary policy ; Welfare ; Währungsunion ; Mitgliedschaft ; Wohlfahrtsanalyse ; Geldpolitik ; Theorie ; Balassa-Samuelson-Effekt

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Ca' Zorzi, Michele ; De Santis, Roberto A. ; Zampolli, Fabrizio
• Event: Veröffentlichung
• (who): European Central Bank (ECB)
• (where): Frankfurt a. M.
• (when): 2005

Further information

• Handle: http://hdl.handle.net/10419/152879
• Last update: 10.03.2025, 11:41 AM CET