Differential requirements for seigniorage provide a weak case for retaining monetary independence. As regards adjustment to asymmetric shocks, nominal exchange rate flexibility is at best a limited blessing and at worst a limited curse. Absence of significant fiscal redistribution mechanisms...

This paper studies stabilisation policies in a multi-country currency union of small open economies. It abstracts from key factors favouring currency union formation, such as reduced transaction costs and enhanced credibility, which are exogenous to the factors studied here. Demand-side shocks...

It is conventionally held that countries are worse off by forming a monetary union when it comes to macroeconomic stabilization. However, this conventional view relies on assuming that monetary policy is conducted optimally. Relaxing the assumption of optimal monetary policy not only uncovers...

It is conventionally held that countries are worse off by forming a monetary union when it comes to macroeconomic stabilization. However, this conventional view relies on assuming that monetary policy is conducted optimally. Relaxing the assumption of optimal monetary policy not only uncovers...

The paper analyses the common European monetary policy based on a Mises-Hayek overinvestment framework, which is combined with the theory of optimum currency areas. It shows how since the turn of the millennium a too expansionary monetary policy contributed to unsustainable overinvestment booms...

The paper analyses the role of monetary policy for cyclical movements of investment and asset markets in East Asia and Europe based on a Mises-Hayek overinvestment framework. It is shown how the gradual global decline of interest rates has triggered wandering overinvestment cycles in Japan,...

This paper investigates the dynamic effects of monetary and fiscal policy in a monetary union, which is characterized by asymmetric interest rate transmission. This asymmetry gives rise to intertemporal reversals in the relative effectiveness of policy on member country outputs. The direction...

This paper explicitly models strategic interaction between two independent national fiscal authorities and a single central bank in a simple New Keynesian model of a monetary union. Monetary policy is constrained by the zero lower bound on nominal interest rates. Coordination of fiscal policies...

This paper explicitly models strategic interaction between two independent national fiscal authorities and a single central bank in a simple New Keynesian model of a monetary union. Monetary policy is constrained by the zero lower bound on nominal interest rates. Coordination of fiscal policies...

The combination of discretionary monetary policy, labor-market distortions and nominal wage rigidity yields an inflation bias as monetary policy tries to exploit nominal wage contracts to address labour-market distortions Although an inflation target eliminates this inflation bias, it creates a...