The Impact of Monetary Instruments on Shock Absorption in EU-Countries


Müller, Claudia ; Buscher, Herbert S.


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URL: http://ub-madoc.bib.uni-mannheim.de/636
URN: urn:nbn:de:bsz:180-madoc-6365
Document Type: Working paper
Year of publication: 1999
Publication language: English
Institution: Sonstige Einrichtungen > ZEW - Leibniz-Zentrum für Europäische Wirtschaftsforschung
MADOC publication series: Veröffentlichungen des ZEW (Leibniz-Zentrum für Europäische Wirtschaftsforschung) > ZEW Discussion Papers
Subject: 330 Economics
Classification: JEL: E30 F15 E10 E65 ,
Subject headings (SWD): Europäische Union / Währungsunion , Wirtschaftspolitik , Finanzpolitik
Abstract: The main characteristic of the implementation of the European Monetary Union (EMU) is the transition from various national currencies to the Euro, the common European currency. A final fixing of the individual bilateral exchange rates of all European countries involved in the Monetary Union accompanies this step. Regarding the microeconomic effects, a positive impact on trade is expected by the reduction of transaction and foreign currency management costs as well as by the elimination of the exchange rate uncertainty. Formerly, the latter influenced foreign trade. At the same time, however, the autonomy of national economic policy is restricted by the loss of former national monetary policy instruments, which will now operate European-wide with the start of EMU. In addition to a unique interest rate policy inside EMU, there will be no longer an – even limited - flexibility of the nominal exchange rates. According to the theory of Optimal Currency Areas (OCA), in a flexible or at least not irrevocably fixed exchange rate system these are two potential instruments carrying some of the burden of macroeconomic adjustment. EMU supporters and sceptics give these aspects different values: while supporters hope to obtain growth and employment impulses through more monetary stability, sceptics are anxious, since in their opinion, the economic convergence of the European states is yet not optimal and, additionally, alternative instruments do not yet function efficiently.
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Müller, Claudia ; Buscher, Herbert S. (1999) The Impact of Monetary Instruments on Shock Absorption in EU-Countries. Open Access [Working paper]
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