ABSTRACT
In this chapter we compare the stabilizing properties of the European Monetary Union (EMU) to those of the European Monetary system {EMS), controlled by Germany. We find that in general the EMU will provide better stabilization of inflation, output, and the interest rate than the EMS. However, these results only apply if the European Central Bank (ECB) can effectively control monetary policy. In the case that the ECB representatives do not coordinate and take a nationalistic point of view, the EMS regime is preferred by various countries.
