TY  - JOUR
AU  - Persson,Torsten
AU  - Tabellini,Guido
TI  - Monetary Cohabitation in Europe
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 5532
PY  - 1996
Y2  - April 1996
UR  - http://www.nber.org/papers/w5532
L1  - http://www.nber.org/papers/w5532.pdf
N1  - Author contact info:
Torsten Persson
Torsten and Ragnar Soderberg Chair in Economic Sci
Institute for International Economic Studies
Stockholm University
SE-106 91 Stockholm
SWEDEN
Tel: +46 8 163066
Fax: +46 8 6747801
E-Mail: Torsten.Persson@iies.su.se

Guido Tabellini
IGIER Universita' Bocconi
Via Roentgen 1
20136 Milano
Italy
Tel: 39 2 583 6 3305; fax 3302
E-Mail: guido.tabellini@unibocconi.it
AB  - How can monetary policy in stage III of European Monetary Union be coordinated between the `ins' and the `outs'?  This paper compares alternative institutional mechanisms, and concludes that a generalized system of inflation targets at the European level has several merits. It strengthens domestic credibility of monetary policy.  It rules out deliberate attempts to gain competitiveness through devaluations.  It forces monetary policy to respond automatically to various macroeconomic shocks which is stabilizing for the real exchange rate. It distributes these shocks symmetrically across countries.  On the basis of a simple theoretical model of policy coordination, the paper shows that a system of inflation targets approximates an optimal policy of international cooperation.  Preliminary empirical evidence supports these theoretical results.
ER  -