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The single monetary policy and domestic macro-fundamentals: Evidence from Spain

Arghyrou, Michael Georgiou and Gadea, Maria Dolores 2012. The single monetary policy and domestic macro-fundamentals: Evidence from Spain. Journal of Policy Modeling 34 (1) , pp. 16-34. 10.1016/j.jpolmod.2011.09.002

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We model pre-euro Spanish monetary policy and use our findings to assess the compatibility of the interest rates set by the ECB since 1999 with Spanish macro-fundamentals. We find that in the 1990s Spain implemented successfully a monetary strategy tailored to its own domestic fundamentals; and by abolishing it to join the euro she has paid a cost in the form of a sub-optimal monetary policy. Our findings suggest that the present turmoil in the market for Spanish government bonds is symptomatic of the risks involved in participating in a monetary union highlighted by the theory of optimum currency areas. We argue in favour of structural reforms increasing Spanish competitiveness, and a cautious approach with respect to the timing of further EMU enlargement.

Item Type: Article
Date Type: Publication
Status: Published
Schools: Business (Including Economics)
Subjects: D History General and Old World > DP Spain
H Social Sciences > H Social Sciences (General)
H Social Sciences > HB Economic Theory
H Social Sciences > HC Economic History and Conditions
H Social Sciences > HG Finance
J Political Science > JA Political science (General)
J Political Science > JN Political institutions (Europe)
Uncontrolled Keywords: Spain ; ECB ; Monetary policy ; Domestic fundamentals ; Compatibility
Publisher: Elsevier
ISSN: 0161-8938
Last Modified: 04 Jun 2017 03:29

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