Joining the Euro - the Macro Effects on the UK Economy

59 Pages Posted: 22 Nov 2002

See all articles by David Meenagh

David Meenagh

Cardiff University Business School

Patrick Minford

Cardiff University Business School; Centre for Economic Policy Research (CEPR)

Bruce Webb

Cardiff University Business School

Date Written: October 2002

Abstract

Stochastic simulations are used on the Liverpool Model of the UK to assess the effect of macroeconomic stability of the UK adopting the Euro. Instability increases substantially, particularly for inflation and real interest rates. A key factor is the extent of the Euro's instability against the dollar; by adopting a regional currency the UK imports this source of shocks, as well as losing its control of interest rates. The results are not highly sensitive to changes in assumptions about the degree of labour market flexibility, the use of fiscal policy, and increased convergence of monetary transmission.

Keywords: Euro, floating, single currency, exchange rate instability, business cycle, transmission mechanisms

JEL Classification: E42

Suggested Citation

Meenagh, David and Minford, Patrick and Webb, Bruce, Joining the Euro - the Macro Effects on the UK Economy (October 2002). CEPR Discussion Paper No. 3602. Available at SSRN: https://ssrn.com/abstract=353783

David Meenagh (Contact Author)

Cardiff University Business School ( email )

Aberconway Building
Colum Drive
Cardiff, CF10 3EU
United Kingdom
+44 29 2087 5198 (Phone)
+44 29 2087 4419 (Fax)

Patrick Minford

Cardiff University Business School ( email )

Aberconway Building
Colum Drive
Cardiff, CF10 3EU
United Kingdom
+44 29 2087 5728 (Phone)
+44 29 2087 4419 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Bruce Webb

Cardiff University Business School ( email )

Aberconway Building
Colum Drive
Cardiff, CF10 3EU
United Kingdom
+44 2920 876802 (Phone)

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