Working Paper: CEPR ID: DP5536
Authors: Philip R. Lane
Abstract: We explore the impact of European monetary union (EMU) on the economies of the member countries. While the annual dispersion in inflation rates have not been much different to the variation across US regions, inflation differentials in the euro area have been much more persistent, such that cumulative intra-EMU real exchange rate movements have been quite substantial. EMU has indeed contributed to greater economic integration - however, economic linkages with the rest of the world have also been growing strongly, such that the relative importance of intra-EMU trade has not dramatically increased. In terms of future risks, a severe economic downturn or financial crisis in a member country will be the proving ground for the political viability of EMU.
Keywords: EMU; Heterogeneity; Integration
JEL Codes: F2; F4
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| EMU membership (F36) | greater economic integration (F15) |
| greater economic integration (F15) | increased cross-border trade and financial transactions (F65) |
| EMU membership (F36) | persistent inflation differentials (E31) |
| persistent inflation differentials (E31) | implications for national economic stability and policy responses (E60) |
| common monetary policy (E52) | divergent inflation rates (E31) |
| divergent inflation rates (E31) | affect real interest rates and competitiveness (E43) |