Regional Price Adjustment in a Monetary Union

Regional Price Adjustment in a Monetary Union

Using a New-Keynesian framework, we investigate how far the inflationary processes in member states of EMU cause regional price levels to converge. We fail to produce hard evidence of the present existence of such an adjustment mechanism, notwithstanding that inflation in some countries tends to converge towards the euro area level. Overall, inflation persistence has declined significantly over...

Spillovers of Regional Fiscal Policies in a Monetary Union∗

This paper studies the design of monetary policy in a fiscal federation, such as the European Union. The focus of the analysis is the interaction between the fiscal policy of member countries (regions) and the monetary authority. Each of the countries structures its fiscal policy (spending and taxes) with the interests of its citizens in mind. Thus each country perceives a gain to shifting its ...

Monetary Union Its Costs

Foreign Price Shocks and Monetary Policy in an Asymmetric Monetary Union

This paper analyzes the dynamic effects of anticipated and unanticipated foreign price increases of imported raw materials for a small two-country monetary union, which is simultaneously characterized by asymmetric wage adjustments and asymmetric interest rate sensitivities of private absorption. It is shown that both types of input price disturbances lead to temporary divergences in output dev...

Working Paper Alfred P. Sloan School of Management Monetary Policy and Costs of Price Adjustment Monetary Policy and Costs of Price Adjustment Monetary Policy and Costs of Price Adjustment Helpful Comments and Suggestions

This paper studies the scope for monetary policy in an economy in which firms are concerned by the adverse reaction of their customers to price changes. First, the rational expectations equilibrium of such an economy is computed. Then, it is shown that the preferences of the monetary authority are time inconsistent as long as it can only respond slowly to changing aggregate statistics. The Stro...