This Paper analyses the interaction between a common monetary policy and differentiated labour market institutions. We develop a model of a two country monetary union. In each country, labour market institutions are distinguished by the degree of centralization in wage bargaining. In each...

Price and output level convergence between new member states and the existing EU necessarily implies inflation and growth divergence for many years to come. That complicates the conditions for accession to the euro. In this Paper, we focus on debt dynamics for the eight new member states from...

The Treaty of Maastricht requires that by 1 January 1999, at the latest, there shall be a nucleus of a monetary union. The issue of monetary union must therefore rest on the presumption that a small ‘credible’ group of countries that fulfils the convergence criteria will be able to adopt a...

The literature argues that the benefits of an independent Central Bank accrue at no cost to the real side. In this paper, we argue that the lack of correlation between monetary autonomy and output variability is due to the proactive role of fiscal policy when faced with rigid monetary...

This paper examines the potential consequences of imposing a ‘stability pact’ on the fiscal convergence criteria for monetary union. Various versions of the stability pact are possible. We examine the consequences of reducing the target deficit ratio to 1% and of refundable fines for those...

The literature has often commented on, but seldom explicitly analysed, the effects of a lack of transparency in monetary policy. Using a standard theoretical model where there are also opportunities for fiscal intervention, we argue that the effects of a lack of transparency will be very...

This paper attempts to reconcile the need for flexibility in fiscal policy, with the need for credibility and consistency in monetary policies. The idea is to generate fewer conflicts between policies but greater discipline within them. We assume an independent central bank and restraints on the...

In many countries two decision-making institutions, the government and the central bank, manage fiscal and monetary policy separately. Such decentralization can lead to a change in the optimal inflation-output trade-off. In fact lack of cooperation can result in a change in the position of the...

In this paper we examine the effects of private agents being less than fully rational. We examine this in the context of monetary policy, where the Central Bank may have uncertain preferences either by choice or by necessity. The new feature is that we allow the public to react in two different...

Using the recent EC Commission report `One Market, One Money' as a point of reference, we consider the merits of a single currency in Europe. The main benefit is the reduction in transaction costs, which the report estimates at 0.4% of European Community (EC) GDP (but much less in countries with...