TY  - JOUR
AU  - Macedo,Jorge Braga de
TI  - Small Countries in Monetary Unions:  A Two-Tier Model
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 1634
PY  - 1985
Y2  - June 1985
UR  - http://www.nber.org/papers/w1634
L1  - http://www.nber.org/papers/w1634.pdf
N1  - Author contact info:
Jorge Braga de Macedo
Universidade Nova de Lisboa
Faculty of Economics
Campus Campolide
1099-032 Lisbon
PORTUGAL
Tel: +351-213630778
Fax: +351-213631460
E-Mail: jbmacedo@fe.unl.pt
AB  - In a previous analysis of the West African Monetary Union, Macedo(1985a), size is taken to be a major structural characteristic of a country in the sense that large countries are not affected by disturbances originating in small countries but small countries are affected by large countries' domestic disturbances. In this paper, we generalize some of the results and present the structure of the model in moredetail. Using a four-country, two-tier macroeconomic model, it is shown that the pseudo-exchange rate union of the two small countries with the large partner has no effect on their real exchange rates but affects their price levels, whereas a full monetary union requires in principle a transfer from the large partner in the union. The allocation of this transfer between the two small countries by their common central bank will have real effects when the allocation rule differs from the steady-state monetary distribution.
ER  -