Price Insurance Aspects of Monetary Union

31 Pages Posted: 1 Jan 2004

Abstract

Omitted from traditional OCA criteria, price effects are important because regional monetary union protects from pricing risks and contributes to greater uniformity and efficiency in price setting. Among member countries it reduces price dispersion in tradables in part by irrevocably fixing the internal exchange rate and in part by facilitating arbitrage. The larger integrated market of the euro area also encourages outside producers to engage in more pricing to market within it. With inflation differentials in tradables reduced throughout the euro area, systematic national inflation differentials are likely to be limited to those attributable to productivity differentials that cause differences in the inflation rate of nontradables.

Keywords: Pricing to Market, Monetary Union, Local Pricing

JEL Classification: F33, F36, F41

Suggested Citation

von Furstenberg, George M., Price Insurance Aspects of Monetary Union. Available at SSRN: https://ssrn.com/abstract=472221 or http://dx.doi.org/10.2139/ssrn.472221

George M. Von Furstenberg (Contact Author)

Indiana University ( email )

Department of Economics
Wylie Hall, Indiana University
Bloomington, IN 47405-6620
United States
812-856-1382 (Phone)
812-855-3736 (Fax)

HOME PAGE: http://mypage.iu.edu/~vonfurst/

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