The uncovered interest rate parity condition lies at the heart of the "impossible trinity", stating that the three objectives of fixed exchange rates, free capital flows, and independent monetary policy cannot be pursued simultaneously. We argue that although monetary unification does indeed...

The uncovered interest rate parity condition lies at the heart of the "impossible trinity", stating that the three objectives of fixed exchange rates, free capital flows, and independent monetary policy cannot be pursued simultaneously. We argue that although monetary unification does indeed...

Does a monetary union need fiscal shock absorbers helping the participating countries to cope with asymmetric shocks? The consensus in the debate over EMU argues that the answer is yes. In this paper, we revisit the issue, building on a dynamic, general equilibrium framework of regions in a...

This paper investigates the transmission of monetary policy to financial markets within the Euro area, focusing on the role of uncertainty. While previous research has extensively examined the effects of changes in expected policy rates through event studies of European Central Banks (ECB)...

This article investigates the potential impact of a shift in market expectations about a country's eurozone entry date on long-term yields and the spot exchange rate in a simple uncovered interest parity (UIP) framework. The results suggest that the size of the reactions depend on how far the...

According to the traditional 'optimum currency area' approach, not much will be lost from a very hard peg to a currency union if there has been little reason for variations in the exchange rate. This paper takes a different approach and highlights the fact that high exchange rate volatility may...

This paper explores the effects of nominal volatility and limited participation in asset markets on the risk sharing possibilities available to agents. When the set of financial assets is a decision of agents and is constrained by the resources available for investment, limited participation and...

The paper starts with the assumption that the Mercosur countries have decided to pursue monetary integration. These countries have essentially two options: a decentralized monetary union (MU) whereby each member country either pegs to the U.S. dollar or dollarizes outright; or a centralized MU...

According to the traditional 'optimum currency area' approach, not much will be lost from a very hard peg to a currency union if there has been little reason for variations in the exchange rate. This paper takes a different approach and highlights the fact that high exchange rate volatility may...

This paper brings together several strands of the literature on the endogenous effects of monetary integration: i.e., whether sharing a single currency may set in motion forces bringing countries closer together. The start of EMU has spurred a new interest in this debate. Four areas are...