Document Type
Article
Publication Date
7-1996
Source Publication
Open Economies Review
Abstract
This article considers a transition toward European monetary union that combines increased substitution of currencies and greater monetary, financial, and fiscal policy coordination. It explores how such a transition would affect national inflation and interest rates and required reserve ratios when governments depend in part on seigniorage funding for public expenditures. We find that greater coordination of policies would lead to lower inflation and interest rates but higher reserve-requirement ratios. Because higher reserve-requirement ratios could place European banks at a competititve disadvantage, we conclude that the interaction between reserve requirements and seigniorage concerns makes it less likely that the gradualist approach of the Maastricht treaty is a sustainable means of transition to European union.
Comments
This is the accepted, peer-reviewed, corrected version before publisher formatting.
Open Economies Review, Volume 7, No. 3 (July 1996).
The published version of this article is available at the publisher's website at http://www.springerlink.com/content/kt2j7217hr4h211n/.