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Heterogeneity In A Currency Union With Social Market Objectives

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  • Andrew Hughes Hallett
  • Diana N. Weymark

Abstract

In this paper, we explore whether heterogeneity among union members could threaten the stability of the European Monetary Union. The types of heterogeneity we consider are (1) asymmetries in the transmission of monetary and fiscal policies, and (2) differences in national preferences for price stability, output growth, and income redistribution. Our results show that the costs of membership can be significant for countries whose transmissions, structure, or preferences deviate from those underlying the common monetary policy. In part, these costs arise because monetary policy imposed by an independent central bank automatically constrains the use of fiscal policy by national governments.

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  • Andrew Hughes Hallett & Diana N. Weymark, 2006. "Heterogeneity In A Currency Union With Social Market Objectives," Scottish Journal of Political Economy, Scottish Economic Society, vol. 53(1), pages 129-152, February.
    • Handle: RePEc:bla:scotjp:v:53:y:2006:i:1:p:129-152
    DOI: 10.1111/j.1467-9485.2005.00373.x
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    References listed on IDEAS

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    1. Dave Turner & Elena Seghezza, 1999. "Testing for a Common OECD Phillips Curve," OECD Economics Department Working Papers 219, OECD Publishing.
    2. Stephen G. Cecchetti, 2001. "Legal Structure, Financial Structure and the Monetary Policy Transmission Mechanism," Palgrave Macmillan Books, in: Deutsche Bundesbank (ed.), The Monetary Transmission Process, chapter 5, pages 170-207, Palgrave Macmillan.
    3. Diana N. Weymark, 2001. "Inflation, Income Redistribution, and Optimal Central Bank Independence," Vanderbilt University Department of Economics Working Papers 0102, Vanderbilt University Department of Economics.
    4. Mads Kieler & Tuomas Saarenheimo, 1998. "Differences in monetary policy transmission? A case not closed," European Economy - Economic Papers 2008 - 2015 132, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
    5. De Grauwe, Paul & Piskorski, Tomasz, 2001. "Union-wide Aggregates versus National Data Based Monetary Policies: Does it Matter for the Eurosystem?," CEPR Discussion Papers 3036, C.E.P.R. Discussion Papers.
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    Cited by:

    1. Fabrice Capoen & Jérôme Creel, 2007. "Efficiency of stability-oriented institutions: the European case," SciencePo Working papers Main hal-03461990, HAL.
    2. Christos Mavrodimitrakis, 2022. "Debt stabilization and financial stability in a monetary union: Market versus authority‐based preventive solutions," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 27(2), pages 2582-2599, April.
    3. Yuan, Huiping & Miller, Stephen M., 2010. "Implementing optimal monetary policy: Objectives and rules," Economic Modelling, Elsevier, vol. 27(3), pages 737-745, May.
    4. repec:hal:spmain:info:hdl:2441/2977 is not listed on IDEAS
    5. Huiping Yuan & Stephen M. Miller & Langnan Chen, 2011. "The Optimality And Controllability Of Monetary Policy Through Delegation With Consistent Targets," Scottish Journal of Political Economy, Scottish Economic Society, vol. 58(1), pages 82-106, February.
    6. repec:spo:wpmain:info:hdl:2441/2977 is not listed on IDEAS
    7. Huiping Yuan & Stephen M. Miller, 2010. "Designing Central Bank Loss Functions," International Journal of Business and Economics, School of Management Development, Feng Chia University, Taichung, Taiwan, vol. 9(1), pages 77-81, April.
    8. Buigut, Steven & Valev, Neven T., 2009. "Benefits from Mutual Restraint in a Multilateral Monetary Union," World Development, Elsevier, vol. 37(3), pages 585-594, March.
    9. Weymark, Diana N., 2007. "Inflation, government transfers, and optimal central bank independence," European Economic Review, Elsevier, vol. 51(2), pages 297-315, February.

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