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Joining the Euro - the Macro Effects on the UK Economy

Author

Listed:
  • Minford, Patrick
  • Webb, Bruce
  • Meenagh, David

Abstract

Stochastic simulations are used on the Liverpool Model of the UK to assess the effect of macroeconomic stability of the UK adopting the Euro. Instability increases substantially, particularly for inflation and real interest rates. A key factor is the extent of the Euro's instability against the dollar; by adopting a regional currency the UK imports this source of shocks, as well as losing its control of interest rates. The results are not highly sensitive to changes in assumptions about the degree of labour market flexibility, the use of fiscal policy, and increased convergence of monetary transmission.

Suggested Citation

  • Minford, Patrick & Webb, Bruce & Meenagh, David, 2002. "Joining the Euro - the Macro Effects on the UK Economy," CEPR Discussion Papers 3602, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:3602
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    More about this item

    Keywords

    Euro; Floating; Single currency; Exchange rate instability; Business cycle; Transmission mechanisms;
    All these keywords.

    JEL classification:

    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System

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