Working Paper: CEPR ID: DP219
Authors: Jacques Melitz
Abstract: This paper tries to explain how, despite its fundamental asymmetry, the European Monetary System may benefit all its members. I argue that the high-inflation members obtain benefits of increased monetary discipline, while the others experience improvements in their international competitiveness. For the low-inflation members, moreover, the incentive to disinflate increases as a result of EMS membership. Finally, the benefits of membership for low-inflation countries are secure; for those with higher inflation, the gains from membership depend on a variety of factors whose net effect is uncertain.
Keywords: European Monetary System; Monetary Discipline; Competitiveness; Incentives to Disinflate; Asymmetry
JEL Codes: 310; 423; 430
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| EMS membership (J60) | increased monetary discipline for high inflation countries (E64) |
| EMS membership (J60) | improved international competitiveness for low inflation countries (E31) |
| EMS membership (J60) | increased incentives for low inflation countries to disinflate (E31) |
| benefits for high inflation countries from EMS membership (F36) | depend on various factors (C39) |
| EMS induces tighter monetary policy in Germany (E58) | implications for member countries' inflation rates and economic behavior (E31) |