Arbeitspapier
Stabilization inside and outside EMU
One central issue in the creation of EMU was whether the common central bank could provide enough stability to the member countries abandoning their domestic monetary policies. In this paper, we analyze the stabilization policies of an EMU candidate country, outside and inside the monetary union, and combine the effects of short-run stabilization policies with these policies’ potential long-run repercussion on the natural rate of output. Such repercussions can emerge if the option to stabilize using domestic monetary policies leads to a permanent rise in the expected real interest rate through the anticipation by the private sector of devaluation-prone policies. We show under which conditions this argument will make it worth while to delegate monetary policy to the common central bank. Inflation targeting policies, when the target is as tight as that of the ECB, do not, in general, lead to this outcome. Instead, in contrast to the popular view, policies with the aim of targeting output, under mild conditions, lead to this conclusion. Finally, an empirical model of the real rate of interest in Sweden is estimated based on the theoretical results of the paper. – EMU ; stabilization policies ; interest rate differential
- Language
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Englisch
- Bibliographic citation
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Series: ETLA Discussion Papers ; No. 821
- Classification
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Wirtschaft
- Subject
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Konjunkturpolitik
Zinsdifferenz
Europäische Wirtschafts- und Währungsunion
- Event
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Geistige Schöpfung
- (who)
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Alho, Kari E.O.
- Event
-
Veröffentlichung
- (who)
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The Research Institute of the Finnish Economy (ETLA)
- (where)
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Helsinki
- (when)
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2002
- Handle
- Last update
-
10.03.2025, 11:42 AM CET
Data provider
ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften - Leibniz-Informationszentrum Wirtschaft. If you have any questions about the object, please contact the data provider.
Object type
- Arbeitspapier
Associated
- Alho, Kari E.O.
- The Research Institute of the Finnish Economy (ETLA)
Time of origin
- 2002
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