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HETEROGENEITY IN A CURRENCY UNION WITH SOCIAL MARKET OBJECTIVES
Author(s) -
Hallett Andrew Hughes,
Weymark Dia.
Publication year - 2006
Publication title -
scottish journal of political economy
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.4
H-Index - 46
eISSN - 1467-9485
pISSN - 0036-9292
DOI - 10.1111/j.1467-9485.2005.00373.x
Subject(s) - economics , redistribution (election) , currency union , monetary policy , common currency , price of stability , monetary economics , fiscal policy , currency , redistribution of income and wealth , fiscal union , macroeconomics , international economics , politics , political science , law , unemployment
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.