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International Policy Transmissions Before and After Establishing a Monetary Union

Author

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  • Rumler, Fabio

    (Department of Economics, Vienna University of Economics and Business Administration)

Abstract

This paper analyzes the effects of the implementation of a monetary union on the international transmission of monetary and fiscal policies. A dynamic three-country general equilibrium model, exhibiting monopolistic competition and sticky prices, is used to show how asymmetric monetary and fiscal policy shocks affect the production and consumption decisions in the three countries. The international effects of asymmetric monetary and fiscal policy shocks are then compared with respect to the two situations - before and after the implementation of a (two-country) monetary union. It is shown that all key economic variables of the two countries forming a monetary union react completely symmetrically to no longer independent monetary and fiscal policy shocks. Even the fiscal policies of the countries forming a monetary union themselves turn out to become symmetric, although, in principle, there is no particular need for government spending levels to be fully synchronized within a monetary union.

Suggested Citation

  • Rumler, Fabio, 1999. "International Policy Transmissions Before and After Establishing a Monetary Union," Economics Series 71, Institute for Advanced Studies.
    • Handle: RePEc:ihs:ihsesp:71
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    File URL: https://irihs.ihs.ac.at/id/eprint/1192
    File Function: First version, 1999
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    References listed on IDEAS

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    Cited by:

    1. Rumler, Fabio, 1999. "Computable general equilibrium modeling. Numerical simulations in a 2-country monetary general equilibrium model," Department of Economics Working Paper Series 65, WU Vienna University of Economics and Business.

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    More about this item

    Keywords

    Macroeconomic policy transmissions; Exchange rate arrangements; EMU;
    All these keywords.

    JEL classification:

    • E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission

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