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Monetary Policy Autonomy in European Non-Euro Countries: 1980–2005
[journal article]
Abstract
We argue that the European currency union (ECU) reduced the de facto monetary policy autonomy of EU countries abstaining from introducing the euro. The large share of imports from euro zone countries renders a close alignment of monetary policy to the interest rate set by the European Central Bank (... view more
We argue that the European currency union (ECU) reduced the de facto monetary policy autonomy of EU countries abstaining from introducing the euro. The large share of imports from euro zone countries renders a close alignment of monetary policy to the interest rate set by the European Central Bank (ECB) necessary if the monetary authorities of countries outside the ECU want to impede the import of inflation from the euro zone or a declining competitiveness of the domestic industry. In turn, the increasing role of the euro as an international reserve medium equal to the US dollar reduced the monetary policy autonomy of countries importing more goods and services from the euro zone than from the dollar zone. An empirical analysis of monetary policy in the United Kingdom, Denmark and Sweden lends support to our theoretical argument. Analysing the shortterm adjustments of central bank interest rates in these three EU countries, which did not introduce the euro, we show that these countries' monetary policies more closely follow the ECB's policy than they followed the Bundesbank's policy before 1994. In addition, we demonstrate the diminishing influence of the dollar on monetary policy in the UK, Denmark and Sweden since the countries of the Economic and Monetary Union harmonized monetary policies.... view less
Keywords
Euro
Classification
National Economy
European Politics
Free Keywords
currency union; monetary policy; monetary policy autonomy; optimal currency area;
Document language
English
Publication Year
2006
Page/Pages
p. 213-234
Journal
European Union Politics, 7 (2006) 2
DOI
https://doi.org/10.1177/1465116506063708
Status
Postprint; peer reviewed
Licence
PEER Licence Agreement (applicable only to documents from PEER project)