Stabilization Policy in an Exchange Rate Union: Transmission, Coordination and Influence on the Union Cohesion

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This study analyzes the impact of monetary and fiscal policy pursued by one member country of an exchange rate union on its own macroeconomic performance, as well as on those of the other member countries and of the rest of the world. Since the analytical framework is defined by a three-country model, many results from the traditional policy co-ordination literature, which relies on two-country models, are qualified. Particular attention is paid to the implications of asymmetries between the EC member countries. Furthermore, the structural parameters are in some instances not taken as given, but as responsive to the unification process. The study is a reference concerning the theoretical analysis of currency unions. It should also be of interest for those concerned with European integration.