Monetary union and macroeconomic stabilization

Dominik Groll

It is conventionally held that countries are worse off by forming a monetary union when it comes to macroeconomic stabilization. However, this conventional view relies on assuming that monetary policy is conducted optimally. Relaxing the assumption of optimal monetary policy not only uncovers that countries do benefit from forming a monetary union under fairly general conditions. More importantly, it also reveals that a monetary union entails the inherent benefit of stabilizing private-sector expectations about future inflation. As a result, inflation rates are more stable in a monetary union.

MoreLess

Year of publication:	2013
Authors:	Groll, Dominik
Publisher:	Kiel : Kiel Inst. for the World Economy
Subject:	Monetary union \| macroeconomic stabilization \| welfare analysis \| history dependence \| inflation expectations \| Währungsunion \| Geldpolitik \| Monetary policy \| Theorie \| Theory \| Inflationserwartung \| Inflation expectations \| Eurozone \| Euro area \| Stabilisierungspolitik \| Stabilization policy \| Wohlfahrtsanalyse \| Welfare analysis \| Finanzpolitik \| Fiscal policy