Tools
Notify Me of Updates
Related Links
Macroeconomic Policy Effects in a Monetary Union
This paper develops a two-country model of a monetary union. In order to analyze fully the linkages between the countries, the model specifies structural equations for the goods, money and bond markets in each country. Interdependencies arise through trade, the asset markets, and a common currency. The model also includes a supply side for each economy based on an expectations augmented Phillips curve. Using this model it is possible to trace the shifts in aggregate demand and aggregate supply in both countries resulting from a change in fiscal and monetary policies. The results suggest that given asymmetries in current account balances, fiscal policies may cause friction among countries in a European monetary union.