Effective Fund surveillance over the members of currency unions entails discussions at the regional level. This requirement derives from the fact that currency union members have devolved responsibility for policy areas that are central to Fund surveillance, notably monetary and exchange rate...

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...

We provide empirical estimates of the risksharing and redistributive properties of fiscal equalization among the states of the German federation. Fiscal equalization serves as a mechanism to insure state budgets against asymmetric revenue shocks, but provides almost no insurance against regional...

The paper argues that international differences in fiscal conditions influence the relative attractiveness of locating production facilities in different countries and could prove to be a troublesome source of instability for the European economies. Even though physical capital movements tend to...

The issue of whether constraints should be placed on fiscal policies when moving to European monetary union is examined in the context of the use of fiscal policy for macroeconomic stabilization purposes. Examples of shocks hitting French and German economies are considered: an appreciation of...

This paper reviews the pros and cons of institutionalized constraints limiting the freedom of national budgetary policies within an Economic and Monetary Union (EMU) in Europe. The issue is approached from three angles: the influence of EMU on (i) budget discipline; (ii) intergenerational equity...

Using Krugman's (1991) target zone model, we find an explicit, sub-game perfect solution for a central bank wishing to stabilize the exchange rate given proportional costs of intervention. We demonstrate, however, that precommitment to narrower bands would yield a welfare gain - which provides a...

It is well known that if international linkages are relatively small, the potential gains to international monetary policy coordination are typically quite limited. What if, however, goods and financial markets are tightly linked? Is it then problematic if countries unilaterally design their...

How can monetary policy in stage III of European Monetary Union be coordinated between the ‘ins’ and the ‘outs’? This paper compares alternative institutional mechanisms, and concludes that a generalized system of inflation targets at the European level has several merits: it strengthens...