In this paper we apply a static version of a New Keynesian macromodel to a monetary union (see Bofinger et al., J Econ Educ, 37:98–117 (2006), Walsh, J Econ Educ, 33:333–346 (2002)). We show in particular that a harmonious functioning of a monetary union critically depends on the...

In a fixed exchange rate regime, an exchange rate change can be a swift way to change the real exchange rate in the short run. Fiscal policy also affects relative prices, and fiscal policy response to various types of shocks can therefore be crucial for the credibility of an exchange rate peg....

The extent of government deficits and debt has been one of the most debated issues in recent years. However, very little has been contributed about their dynamics . Yet, the issue of entering into and exiting from excessive deficits will be critical in the European monetary union since the...