On the Cost of Moving from a Quasi Monetary Union to a Full Monetary Union: The Case of the Netherlands

We analyze the effects of a contractionary Dutch monetary policy shock that is consistent with the fixed guilder/mark exchange rate. Although monetary policy shocks are quite small, they do have plausible effects: credit, expenditures, output and prices all fall after a monetary tightening. Policy shocks account for non-negligible parts of the forecast error variance of macroeconomic variables. EMU membership thus entails a non-trivial sacrifice in terms of macroeconomic stabilization - even for the Netherlands, which many deemed to be in a quasi monetary union with Germany.