Document Type

Article

Language

eng

Format of Original

17 p.

Publication Date

7-1996

Publisher

Springer

Source Publication

Open Economies Review

Source ISSN

0923-7992

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

Accepted version. Open Economies Review, Vol. 7, No. 3 (July 1996): 257-273. DOI. © Springer 1996. Used with permission.

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