Monetary Stabilisation Policy in a Monetary Union: Some Simple Analytics
In: Scottish journal of political economy: the journal of the Scottish Economic Society, Band 49, Heft 2, S. 196-215
ISSN: 0036-9292
We do two things in this paper. First, we look at some simple models of monetary decision making in a monetary union & ask how much more variable a country's output & inflation is likely to be if it joins the union. We answer this analytically & then go on to "calibrate" the simple model. The model has few structural equations, but it is useful in allowing us to examine how the variability of output & inflation are likely to change as key parameters change. Our conclusions on this front are likely to be sensitive to model specification. However, we also identify a second best issue concerning the optimal make-up of the monetary union that is likely to be more robust: namely that only when all members of the union have the same structural parameter values (& shocks are perfectly correlated) will it be optimal for a new member to have these same structural parameter values. 1 Table, 1 Figure, 1 Appendix, 36 References. Adapted from the source document.