Can the European Monetary System be Copied Outside Europe?: Lessons from Ten Years of Monetary Policy Coordination in Europe
National Bureau of Economic Research, 1988 - Fiscal policy - 41 pages
This paper addresses the question of whether the European Monetary System can be copied outside Europe. Our answer is negative. The EMS is just one element of a more comprehensive design of institutional integration within Europe: the presence of the European Economic Community, and the dependence of EEC institutions upon exchange rate stability lend credibility to EMS exchange rate targets in a way that would not be present. say, among the United States, Europe and Japan. The EMS has also reproduced previous experiences of fixed exchange rates by not imposing the exchange rate constraint symmetrically upon all member countries: the system has de facto worked as a DM-zone, thus confirming that the institution of fixed rates pg cannot induce international monetary cooperation. Finally, the differences in the use of the inflation tax among European countries and the divergent behavior of government debt after 1979 indicate that the pursuit of monetary convergence among countries with different fiscal structures might entail substantial fiscal reforms.
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Belgium Bretton Woods system center country central bank COORDINATION IN EUROPE COPIED OUTSIDE EUROPE credibility debt level Denmark Deutsche mark devaluation disinflation effort divergence dynamics effective exchange rate equation European countries EUROPEAN MONETARY SYSTEM exchange rate fluctuations exchange rate stability exchange rate targets exchange-rate targets fiscal correction fixed exchange rates French franc Germany's terms-of-trade global government debt growth rate higher inflation increase inflation and output inflation rates inflation reduction inflation tax institutional interest-rate differentials international monetary policy intra-EMS intra-European Ireland Ireland and Italy Italy lower macroeconomic monetary authority monetary contraction monetary convergence MONETARY POLICY COORDINATION monetary targets money financing output growth output-inflation tradeoff parity percent of GDP point of inflation price setters prices and wages primary deficit real effective exchange real rate realignments reform regime seignorage shift in expectations simulated values subsidies Table trade Treaty of Rome unpopular policies wage and price wage inflation West Germany worsen