DP178 Monetary Discipline, Germany, and the European Monetary System

Author(s): Jacques Mélitz

Publication Date: April 1987

Keyword(s): European Monetary System , Germany , Inflation , Monetary Discipline , Monetary Policy

JEL(s): 023 , 122 , 311 , 431 , 432

Programme Areas: International Macroeconomics

Link to this Page: www.cepr.org/pubs/dps/DP178.asp

This paper explores the hypothesis that the non-German members of the European Monetary System (EMS) draw benefits from the system because of the monetary discipline that it imposes upon them. The hypothesis explains the dominant position of Germany in the EMS and is consistent with the evidence that membership has induced several countries to disinflate more than they would have done otherwise. Analysis shows, however, that the required conditions for the hypothesis to work are very stringent. Even if the conditions are met, the non-German members could obtain the advantages of monetary discipline in other ways.