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Empirical evidence suggests that for many countries, retail prices of traded goods are sticky in national currencies. Movements in exchange rates then cause deviations from the law of one price, and exchange rate ëmisalignmentí, which cannot be corrected by monetary policy alone. This paper...
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Formation of the Euro area raises new questions about the coordination of monetary and fiscal policy. Using a New Neoclassical Synthesis (NNS) model, we show that a common monetary policy, responding to area-wide aggregates, has asymmetric effects on countries within the union, depending on...
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. The members of the eurozone are supposedly constrained by the fiscal caps of the Stability and Growth Pact. Yet ever since …:•Governments' budget forecasts are biased in the optimistic direction, especially among the Eurozone countries, especially when they have …-optimistic during booms.•Despite the well-known tendency of eurozone members to exceed the 3% cap on budget deficits, often in …
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