Suchergebnisse

The book The European Monetary Union in a Public Choice Perspective, by Jennifer C. Martin-Das, is reviewed.

The European Monetary Union raises new and interesting questions about the coordination of monetary and fiscal policy. In this lecture, I discuss some of these questions and the answers that a new class of models—new neoclassical synthesis (NNS) models—is currently giving to them. I will argue that the new questions expose some weaknesses in current NNS modeling; in particular, the models do not seem to explain the positive correlation between national inflation and growth differentials that has been observed in the European data. I also review some recent work that has been done on policy coordination within a currency union.

The European Community (EC) seems headed toward monetary union, either with "permanently" fixed exchange rates or with a common currency. Ceteris paribus, the breakup of the Soviet empire in Eastern Europe makes monetary union less desirable. One can expect further shocks from the East. Analyzing stock markets' reactions to events in the East from late 1988 to early 1990 shows that these shocks typically differentially affect EC members, particularly Germany. These differential shocks often call for adjustments in relative national price levels, which can be accomplished most easily with exchange‐rate adjustments. The likelihood of such pressures reduces the credibility of a system of pegged rates and makes the system more vulnerable to speculative runs. A common currency is more credible by its nature but may give an inflationary bias to the European Monetary Union.