Transparency and Catching Up in a Monetary Union

Abstract

We report transparency scores and growth indicators for the euro area and various classes of potential euro area candidates. We then study currency union stabilization when monetary policy transparency may be imperfect and supply conditions may be country-specific. Sectoral productivity shocks are found to reduce the effectiveness of the single monetary policy compared to monetary autonomy. For a small open economy, a wider crosscountry gap in supply slopes (as induced by larger trade openness differentials) favors currency union participation. Small size hampers monetary union stabilization under supply shocks, but not when output target shocks are misperceived by the public. • JEL Classification : E52, E58, D82, F33, F40 •