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Title:Foreign price shocks and monetary policy in an asymmetric monetary union PDF Logo
Authors:Wohltmann, Hans-Werner
Clausen, Volker
Issue Date:2002
Series/Report no.:Diskussionsbeiträge aus dem Fachbereich Wirtschaftswissenschaften, Universität - Gesamthochschule - Essen 124
Abstract:This paper analyzes the dynamic effects of anticipated and unanticipated foreign price increases of imported raw materials for a small two-country monetary union, which is simultaneously characterized by asymmetric wage adjustments and asymmetric interest rate sensitivities of private absorption. It is shown that both types of input price disturbances lead to temporary divergences in output developments across the monetary union. In the case of anticipated materials price increases the relative cyclical position of output effects is reversed in the course of the adjustment process. With anticipated input price increases complete stabilization of the output variables throughout the overall adjustment process requires restrictive monetary policy to be time-inconsistent from a quantitative but time-consistent from a qualitative point of view. That means that the central bank credibly announces a future reduction in the growth rate of nominal money stock but actually realizes a decrease in the monetary growth rate, which is less restrictive than the announcement.
Subjects:EMU
international policy transmission
oil price shock
time inconsistency
JEL:E63
F41
Document Type:Working Paper
Appears in Collections:IBES Diskussionsbeiträge, Universität Duisburg-Essen

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