Abstract
A central hypothesis and concern of some skeptics of European monetary union is that monetary policy coordination to secure a peg to the Gennan mark (DM) will tie real economic performance, especially the unemployment rate, to that in Germany. Evidence on this hypothesis can be found in Austria, Belgium and the Netherlands, however, where currencies have been tightly pegged to the mark since 1979, 1986 and 1984, respectively. This paper reviews the theoretical link between a country’s real performance and its coordination with foreign economic policy. It uses the three countries’ Phillips curves to gauge real economic performance; it tests whether Phillips curve parameters have shifted adversely following the introduction of the DM-peg and whether any such shift is related to German unemployment rate movements. The article concludes that coordination does not have adverse economic effects on real economic performance.
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