Economic and Monetary Union in Europe
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Economic and Monetary Union in Europe

Theory, Evidence and Practice

Edited by Mark Baimbridge and Philip Whyman

Economic and Monetary Union in Europe brings together contributions from leading specialists which explain and evaluate the most important implications of economic and monetary union. The book examines theoretical aspects of monetary integration, illustrates the historical lessons to be learned from these and discusses the resulting policy consequences.
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Chapter 10: EMU and the rest of the world: thinking about the effects on the real economy

L. Alan Winters


1 L. Alan Winters We have virtually no hard evidence on how regional trade integration has affected economic welfare in the rest of the world (RoW). A fortiori, we have very little on which to base an estimate of how EMU will affect the rest of the world, even if we focus just on its effects on the real economy. The reasons for this lamentable and surprising state of affairs are that, to date, we have largely failed to measure the effects that theory shows to matter, and that much of what we have measured hardly matters at all. The theoretical and empirical analyses of the effects of regional integration on excluded countries are far apart, and the practical difficulties of doing the latter correctly are formidable in terms of both finding data and extracting their messages. I have argued elsewhere that, despite the difficulties, we should try to carry out serious empirical work on this important issue – e.g. Winters (1997a,b) – and have, in fact, started that process in Winters and Chang (forthcoming) and Chang and Winters (1999). Here I show how one might use the framework developed to do such work in order to start to think about the effects of EMU. The monetary effects of EMU will undoubtedly be major, but I leave them to those who are more qualified than me to analyse them. Here I concentrate just on the real effects of EMU – its effects on European efficiency, output, demand, etc. – and their transmission to...

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