The European Monetary Union as a Commitment Device for New EU Member States

Arbeitspapier

We show that the credibility gain from permanently committing to a fixed exchange rate by joining the European Monetary Union can outweigh the loss from giving up independent monetary policy if the domestic monetary authority does not enjoy full credibility. Using a DSGE model, this paper shows that when the central bank enjoys only limited credibility a pegged exchange rate regime yields a lower loss compared to an inflation targeting policy, even if this policy ranking would be reversed in a full-credibility environment. There exists an initial stock of credibility that must be achieved for a policy-maker to adopt inflation targeting over a strict exchange rate targeting regime. Full credibility is not a precondition, but exposure to foreign and financial shocks and high steady state inflation make joining the EMU relatively more attractive for a given level of credibility. The theoretical results are consistent with empirical evidence we provide on the relationship between credibility and monetary regimes using a Bank of England survey of 81 central banks.

Angaben zum Objekt

• Sprache: Englisch

Verweise und Beziehungen

• Erschienen in: Series: Working Paper ; No. 98

Klassifikation und Themen

• Klassifikation: Wirtschaft ; Monetary Policy ; Price Level; Inflation; Deflation ; International Economic Order and Integration ; Open Economy Macroeconomics
• Thema: Inflation targeting ; Credibilty ; Open Economy ; Exchange Rate Regimes ; Monetary Policy

Beteiligte, Orts- und Zeitangaben

• Ereignis: Geistige Schöpfung
• (wer): Ravenna, Federico
• Ereignis: Veröffentlichung
• (wer): Oesterreichische Nationalbank (OeNB)
• (wo): Vienna
• (wann): 2005

Weitere Informationen

• Handle: http://hdl.handle.net/10419/264690
• Letzte Aktualisierung: 10.03.2025, 11:42 MEZ