Monetary regimes in open economies

A. Korpos

Research output: ThesisDoctoral Thesis

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Abstract

This thesis presents a two-country open economy framework for the analysis of strategic interactions among monetary authorities and wage bargaining institutions. From this perspective, the thesis investigates the economic consequences of replacing flexible and fixed exchange rate regimes with a monetary union, such as the European Economic and Monetary Union. It shows that fixing a currency creates a flatter Phillips curve and increases the aggressiveness of wage demands by labor unions. Compared to the existing literature, this open economy approach shows diametrically opposite results from replacing a regime of fixed exchange rates with a monetary union. This framework also shows that the high conservativeness of a central bank is beneficial for a foreign economy. Furthermore, the thesis studies the effects of shocks across countries and shows that optimal monetary policy reverses the direct effect of a productivity shock on foreign output. Hence, it reveals a mechanism that can explain the output anomaly identified by Backus, Kehoe and Kydland, that productivity shocks generate positively correlated output across countries. Understanding these mechanisms allows policymakers to consider the strategic implications of the design of institutions and policy in an open economy.
Original languageEnglish
QualificationDoctor of Philosophy
Awarding Institution
  • Tilburg University
Supervisors/Advisors
  • Cukierman, A., Promotor
Award date22 Nov 2006
Place of PublicationTilburg
Publisher
Print ISBNs9056681834
Publication statusPublished - 2006

Fingerprint

Monetary regimes
Open economy
Fixed exchange rates
Productivity shocks
Monetary union
Flexible exchange rates
Politicians
Currency
Labor unions
Wages
Authority
Central bank
Optimal monetary policy
Phillips curve
Anomaly
Economic consequences
Direct effect
Economic and monetary union
Exchange rate regimes
Strategic interaction

Cite this

Korpos, A. (2006). Monetary regimes in open economies. Tilburg: CentER, Center for Economic Research.
Korpos, A.. / Monetary regimes in open economies. Tilburg : CentER, Center for Economic Research, 2006. 148 p.
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Korpos, A 2006, 'Monetary regimes in open economies', Doctor of Philosophy, Tilburg University, Tilburg.

Monetary regimes in open economies. / Korpos, A.

Tilburg : CentER, Center for Economic Research, 2006. 148 p.

Research output: ThesisDoctoral Thesis

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T1 - Monetary regimes in open economies

AU - Korpos, A.

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AB - This thesis presents a two-country open economy framework for the analysis of strategic interactions among monetary authorities and wage bargaining institutions. From this perspective, the thesis investigates the economic consequences of replacing flexible and fixed exchange rate regimes with a monetary union, such as the European Economic and Monetary Union. It shows that fixing a currency creates a flatter Phillips curve and increases the aggressiveness of wage demands by labor unions. Compared to the existing literature, this open economy approach shows diametrically opposite results from replacing a regime of fixed exchange rates with a monetary union. This framework also shows that the high conservativeness of a central bank is beneficial for a foreign economy. Furthermore, the thesis studies the effects of shocks across countries and shows that optimal monetary policy reverses the direct effect of a productivity shock on foreign output. Hence, it reveals a mechanism that can explain the output anomaly identified by Backus, Kehoe and Kydland, that productivity shocks generate positively correlated output across countries. Understanding these mechanisms allows policymakers to consider the strategic implications of the design of institutions and policy in an open economy.

M3 - Doctoral Thesis

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T3 - CentER Dissertation Series

PB - CentER, Center for Economic Research

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Korpos A. Monetary regimes in open economies. Tilburg: CentER, Center for Economic Research, 2006. 148 p. (CentER Dissertation Series).