Accession to the Euro-Area: A Stylized Analysis Using a New Keynesian Model

This paper analyses the accession to the Euro-Area by new members using a stylized new-Keynesian model. We analyze macro-economic adjustment in the pre- and post accession case and calculate welfare in both situations to obtain net benefit/loss from accession. It is shown how the effects of accession is related to the conduct of monetary policy and fiscal policy in the pre- and post accession case. The simulation examples point at the potential costs that accession might entail due its consequences on monetary and fiscal policy design. These consequences from accession in terms of macro-economic stabilization ability of monetary and fiscal policies have not always been fully acknowledged and may need more attention.

van Aarle, Bas, Harry Garretsen and Cindy Moons (2007), Accession to the Euro-Area: A Stylized Analysis Using a New Keynesian Model, International Economics and Economic Policy 2007