This book addresses the macroeconomic implications of a country's transition to a monetary union. By using a dynamic multi-country simulation model, it is possible to pinpoint a monetary union, and repercussions produced by fiscal retrenchment policies. Interest and exchange rate effects could only be captured once a new approach including innovations in the solution methodology had been developed. Not only can we draw lessons for newly joining members to the EMU or to any other monetary union, but the analysis also implicitly offers a new explanation for the weak Euro in the first half of 1999.
This book addresses the macroeconomic implications of a country's transition to a monetary union. By using a dynamic multi-country simulation model, it is possible to pinpoint a monetary union, and repercussions produced by fiscal retrenchment policies. Interest and exchange rate effects could only be captured once a new approach including innovations in the solution methodology had been developed. Not only can we draw lessons for newly joining members to the EMU or to any other monetary union, but the analysis also implicitly offers a new explanation for the weak Euro in the first half of 1999. 1 Introduction.- I: Model and Methodical Background.- 2 Simulation Framework.- 3 Baseline and Hypothetical EMU Scenarios.- 4 Methodical Specifications and Limitations (6 Questions).- II: Results and Applications.- 5 Simulation Results.- 6 Interest and Exchange Rate Impulses.- 7 Assumptions and the Real World EMU (6 Questions).- III: Fiscal Policy in Italy - An Extension.- 8 Fiscal Consolidation Without EMU.- 9 Fiscal Retrenchment and Hypothetical EMU.- 10 Conclusion.- APPENDICES.- List of Observations.- List of Boxes.- Overview: Simulation Exercises and Scenarios.- References.
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