The European Monetary Union: Were there Alternatives to the ECB? A Quantitative Evaluation

There is a large and growing literature on the benefits and cost of European Monetary Union (EMU) in Europe. Much of the literature is theoretical in nature with very little empirical evaluation of the magnitudes of effects. This paper places some quantitative magnitudes on the scale of some issues in European monetary integration. It uses the European version of the MSG2 multicountry model to evaluate the variance of a number of European variables in the faces of shocks to money markets, fiscal policy, and total factor productivity under three alternative European monetary regimes: (1) an EMU with a European Central Bank (ECB) setting monetary policy, (2) the earlier European Monetary tradeoffs between targets of countries within the monetary regimes. In addition, the more complex issue of fiscal policy under alternative monetary regimes could usefully be explored.