THE TRANSITION TO EUROPEAN MONETARY UNION AND THE EUROPEAN MONETARY INSTITUTE |
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Authors: | JÜ RGEN VON,HAGEN MICHELE FRATIANNI |
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Affiliation: | Department of Business Economics, Graduate School of Business, Indiana University, Bloomington, Indiana 47405 University of Mannheim, Fakultät für VWL &Statistik, Seminargebäude A5, 6800 Mannheim 1-Germany;Department of Business Economics, Graduate School of Business, Indiana University, Bloomington, Indiana 47405 |
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Abstract: | The European Monetary Institute (EMI) will prepare a framework for European Monetary Union (EMU) monetary policy during the transition to the EMU. This involves a trade-off between deepening financial market integration and harmonizing central bank instruments, a choice between centralized and decentralized monetary strategies with significant welfare implications, and a trade-off between expected welfare and certainty of policy outcomes. As a result of being dominated by national central bankers and of the conflict between the core and the periphery of the European Community (EC), the EMI is biased toward an inefficient solution. Enlargement of the EC by the European Free Trade Area (EFTA) group would raise the probability of a more efficient, two-track EMU, which initially would involve only the core group. |
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