An Enlarged Economic and Monetary Union: Effects and Policy Implications

We calculate an "enlarged" Phillips curve for a theoretical EMU with 12+8 Member States. Both the empirical evidence and the econometric analysis show the worsening of the trade-off between inflation and unemployment, and hence the need to revise, at least temporarily, the stance of the ECB monetary policy. Also, the estimates point to a modified responsiveness of the money-demand function to the changes of the interest rates, given, however, a greater stability of such a function in the long-run.