European monetary union and the outsiders

This article looks at the impact on a small outside country if a larger, outsider country were to join a nearby monetary union, exemplified by the likely effects on Norway of the UK deciding to join the Euro. We construct a theoretical model to capture such effects, which focuses on the effect of union on Norway as the small outside state. We then estimate the model using data from the period 1980–1999 (the period covering the existence of the ECU and the Euro), and find that there would be substantial implications for the management of the Norwegian economy in response to asymmetric shocks and EU fiscal and monetary policy.