Foreign price shocks and monetary policy in an asymmetric monetary union

Arbeitspapier

This paper analyzes the dynamic effects of anticipated and unanticipated foreign price increases of imported raw materials for a small two-country monetary union, which is simultaneously characterized by asymmetric wage adjustments and asymmetric interest rate sensitivities of private absorption. It is shown that both types of input price disturbances lead to temporary divergences in output developments across the monetary union. In the case of anticipated materials price increases the relative cyclical position of output effects is reversed in the course of the adjustment process. With anticipated input price increases complete stabilization of the output variables throughout the overall adjustment process requires restrictive monetary policy to be time-inconsistent from a quantitative but time-consistent from a qualitative point of view. That means that the central bank credibly announces a future reduction in the growth rate of nominal money stock but actually realizes a decrease in the monetary growth rate, which is less restrictive than the announcement.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Diskussionsbeitrag ; No. 124

Classification and Topics

• Classification: Wirtschaft ; Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy ; Open Economy Macroeconomics
• Subject: EMU ; international policy transmission ; oil price shock ; time inconsistency ; Mineralölpreisschock ; Geldpolitik ; Währungsunion ; Zwei-Länder-Modell ; Konjunkturzusammenhang ; Zeitkonsistenz ; Theorie

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Wohltmann, Hans-Werner ; Clausen, Volker
• Event: Veröffentlichung
• (who): Universität-Gesamthochschule Essen, Fachbereich Wirtschaftswissenschaften
• (where): Essen
• (when): 2002

Further information

• Handle: http://hdl.handle.net/10419/40932
• Last update: 10.03.2025, 11:42 AM CET