EUROPEAN-MONETARY-UNION - A NEW APPROACH

This paper studies the implications of European monetary integration i n Europe for real interest rates and for the variability of the transa tlantic exchange in Germany and the UK. If the ECB adopts the targetin g procedures of the Bundesbank then currency union will lower real int erest rates somewhat but significantly decrease exchange rate variabil ity to that in Germany. In the absence of credibility problems and ass uming that the UK would have otherwise followed inflation targeting, B ritish participation in the EMU will result in slightly lower UK real interest rates but substantially greater exchange rate volatility agai nst the US. (C) 1997 Elsevier Science Ltd.