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Abstract The euro area consists of several small open, fairly heterogeneous economies. The establishment of this common currency area greatly changed the macroeconomic interdependency between its member countries. This thesis examines the fundamental macroeconomic linkages and spillover effects between the monetary union member countries with the focus on the phenomena associated with the countries' openness to international trade. This doctoral thesis consists of three essays. The first essay examines the impact of the implementation of a monetary union on international economic fluctuations. The essay finds that the implementation reverses the expenditure-switching effects between goods produced inside the monetary union, and helps to stabilize economic fluctuations. The second essay examines the effects of openness to international trade on a small monetary union. The essay shows howmovements in the monetary union's exchange rate stabilize output fluctuations inside the monetary union and reduce the need for fiscal stabilization. The third essay argues that, under a non-coordinated optimal fiscal policy, government spending should focus on the stabilization of a local output gap and inflation, while union-wide aggregate fluctuations should be stabilized by a common independent monetary policy. The essay also shows how a suboptimal monetary policy increases the spillover effects of countryspecific shocks. ; Tiivistelmä Tässä väitöskirjassa tutkitaan rahaliiton maiden välisiä makrotaloudellisia riippuvuussuhteita. Tutkimuksessa keskitytään erityisesti kansainvälisen kaupan ilmiöihin. Väitöskirja koostuu kolmesta erillisestä esseestä. Ensimmäisessä esseessä käsitellään rahaliiton perustamisen vaikutuksia kansainvälisen talouden dynamiikkaan. Tulosten mukaan rahaliiton perustaminen muuttaa vaihtosuhteen dynamiikkaa rahaliiton sisällä. Lisäksi rahaliiton muodostaminen vaimentaa jäsenmaiden makrotaloudellisia heilahteluita. Toisessa esseessä tutkitaan kansainvälisen kaupan merkitystä pienen rahaliiton tapauksessa. Havaitaan, että yhteisvaluutan kurssimuutokset tasapainottavat rahaliiton sisäisiä reaalitalouden muutoksia ja vähentävät tarvetta tasapainottaa taloutta finanssipolitiikan avulla. Kolmannessa esseessä osoitetaan, että rahaliiton jäsenvaltioiden harjoittaman itsenäisen finanssipolitiikan tulisi keskittyä kotimaisen inflaation ja tuotannon tasapainottamiseen. Yhteisen rahapolitiikan tulisi puolestaan tasapainottaa rahaliiton keskimääräisiä muutoksia. Tulosten mukaan epäoptimaalinen rahapolitiikka voimistaa maakohtaisten reaalitaloudellisten muutosten välittymistä muihin rahaliiton maihin.

The last few years, the economic divergences which were observed in macroeconomic performances of the EU's Member States as well as the low rate of their economic adaptation within the EMU, had raised concerns about the long-run sustainability of the EMU. During the first decade, the EMU has not decisively contributed to the creation of a stable and strong macroeconomic environment for the Member States as the real economic convergence remained on paper. The economic heterogeneity is likely to lead to asymmetric economic preferences concerning the economic policies which are followed by each of the Members States. This increases the likelihood of future conflicts and reduces the possibility of the creation of a genuine monetary union. In this regard, the Member States continue to pursue their own economic policies, mainly based on their national preferences and it is very difficult to change in the very short-run the culture of economic policy they represent.

We provide a general equilibrium framework for analyzing the effects of supply and demand side policies, and the potential synergies between them, in an asymmetric monetary union that faces a liquidity trap and a slow deleveraging process in its 'periphery'. We find that the joint implementation of pro-competition structural reforms in the periphery, a fiscal expansion in the 'core', and forward guidance about the three policies: forward guidance re-inforces the expansionary effects of country-specific policies, and the latter in turn improve the effectiveness of forward guidance. ; The ADEMU Working Paper Series is being supported by the European Commission Horizon 2020 European Union funding for Research & Innovation, grant agreement No 649396.

European integration efforts are on the brink of collapse. In its current state, the European Monetary Union is unintentionally acting more as a dis-integration factor than as a unifying element. Dirk Meyer provides descriptions, analyses and background information on the current crisis. The book is the result of more than ten years of work on the subject. The content Why is the policy of no alternatives so dangerous? What does "crisis policy" mean and why do its consequences have a disintegrative effect? What are the costs of the low interest rate policy? How much debt relief did Greece really get? To what extent do additional money emitted by the national central banks and the ECB's bond-purchasing programmes endanger the unity of the monetary union? Vol. II: Scenarios for the Future of the Euro.

AbstractThis paper explores the interaction between the proposed monetary union for ECOWAS and structural reforms of fiscal policy. In a monetary union among symmetric countries members run a more distortionary fiscal policy and structural reform efforts fall. This can also follow in countries that adopt a unilateral peg or a foreign currency. In a monetary union with asymmetric countries reforms increase in countries that are relatively less distorted and the reverse happens in more distorted economies. Most West African Economic and Monetary Union members are thus likely to have a less distortionary fiscal policy after forming a monetary union with other ECOWAS members. Copyright © 2008 John Wiley & Sons, Ltd.

This thesis consists of three separate, but interlinked chapters on national fiscal policy in a monetary union. Throughout, I employ new Keynesian models that are augmented by the introduction of overlapping generations of the Blanchard-Yaari type. The first chapter presents an analytically tractable two-country model of a currency union, which abstracts from distortions other than sticky prices in the goods market and failures of the Ricardian equivalence. Here, the government chooses a certain level of public spending. The government's options of financing its public spending are limited to public debt or taxation. I find that, depending on the financing decision of the government, fiscal policy measures can have very different effects on key macroeconomic variables. The spillovers of national fiscal policy depend on the composition of government spending, the type of the fiscal measure and the cross-country substitutability between goods. The second chapter restricts the attention to a new Keynesian closed economy model that features public as well as private investment. The government is in a position to employ either spending-side measures, i.e. cuts in public consumption, or improve public revenues in order to finance a temporary fiscal expansion. Both, the financing decision as well as possible failures of the Ricardian equivalence have a large impact on how fiscal measures affect key macroeconomic variables. The results suggest that a single deviation from the standard model, e.g. failures of the Ricardian equivalence, is not sufficient to reconcile theory and empirical evidence. The last chapter builds on these findings and develops the issue further by extending the model of chapter 2 to a two-country model of a currency union. I focus on fiscal measures that are frequently employed in practice. When assessing the impact of central components of the European Economic Recovery Plan on the economy of the implementing country, I look also at the implied spillovers. Finally, a brief summariy of some major results of the three chapters: Failures of the Ricardian equivalence enable theoretical models to yield predictions that are close to empirical evidence. However, this comes at the price of deviating from the Ricardian equivalence in a way which cannot be confirmed empirically. The introduction of a more complex fiscal sector and the assumption that fiscal policy is endogenous, allows for moving theoretical predictions closer to the empirical evidence without having to rely crucially on deviations from Ricardian behavior. My results suggest that focusing on distortions in intertemporal optimization is a too narrow approach to tackle with research questions related to the conduct and effects of fiscal policy in theoretical models.