Emu in the Early Years: Differences and Credibility
48 Pages Posted: 13 Jun 2001
Date Written: June 2001
Abstract
The main issue in the early years of EMU is one of credibility. On one hand, high exposure to asymmetric shocks and low adaptability (be it in terms of stabilization or adjustment) to both symmetric and asymmetric shocks make the early years of EMU potentially problematic. On the other hand, significant economic differences between EMU countries raise questions regarding the objective of price stability. Credibility-enhancing policy choices may, in the short run, conflict with optimal smoothing of shocks, but are essential to 'ferry' EMU towards its 'steady state'. While a number of uncertainties still hang over the new regime, the Paper finds that the experience of EMU so far is heartening. Although economic divergences skewed on the high side made internal monetary misalignments politically less troublesome, the stability-oriented EMU framework fostered broadly appropriate policy behaviour in terms of both efforts to increase adaptability to shocks and of actual response to observed shocks.
Keywords: EMU, exposure and adaptability to shocks, fiscal and monetary policy, policy coordination
JEL Classification: E42, E50, E61, E63
Suggested Citation: Suggested Citation
Do you have negative results from your research you’d like to share?
Recommended Papers
-
Fiscal Policy and Monetary Integration in Europe
By Jordi Galí and Roberto Perotti
-
Fiscal Policy and Monetary Integration in Europe
By Jordi Galí and Roberto Perotti
-
Revisiting the Stability and Growth Pact: Grand Design or Internal Adjustment?
By Marco Buti, Sylvester C. W. Eijffinger, ...
-
By Willem H. Buiter and Clemens Grafe
-
Fiscal Rules: Useful Policy Framework or Unnecessary Ornament?
-
Improving the Sgp Through a Proper Accounting of Public Investment
-
Consumption Smoothing Through Fiscal Policy in OECD and EU Countries
By Adriana Arreaza, Bent E. Sørensen, ...