The Exchange Rate Policy of the Euro: A Matter of Size ?
There are many things we do not know about European monetary integration as there is no historical precedent to it. However, we know for sure that the size of the zone created by the EMU will be bigger (far bigger in the case of EMU15) than European countries taken separately. In this paper, we start from this size effect of EMU and exploit it to analyse from a theoretical and empirical point of view the question of exchange rate policy with the EMU. We argue that country size matters as a determinant of monetary policy in an open economy policy and volatility because it changes the incentive to use monetary policy to influence the exchange rate.
exchange rate policy; euro; european integration; game theory; EMS
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