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Journal Article
Government investment and the European stability and growth pact
The authors analyze whether it makes sense to treat public investment spending differently from other government spending when applying the deficit constraints mandated within the single European currency area. Given the low rates of population growth, mobility, and mortality in European countries, they find that excluding public investment from the computation of the deficit ceiling has only moderate implications for the current generations? spending choices. They also show that excluding net investment yields better outcomes than excluding gross investment.
Journal Article
The European system of central banks
On January 1, 1999, the European System of Central Banks (ESCB) began conducting monetary policy for eleven of the fifteen nations of the European Union, formally creating an economic and monetary union. The ESCB is governed by the decision-making bodies of the European Central Bank (ECB) and manages Europe's new currency, the euro. The structure of the ESCB is in many ways similar to that of the Federal Reserve System, with the ECB playing a role similar to that of the Board of Governors and the various national central banks occupying positions not unlike those of the regional Reserve ...
Journal Article
Central bank flexibility and the drawbacks to currency unification
Recently, the benefits to monetary unification have been widely heralded. Advocates of European, as well as East and West German, monetary integration point repeatedly to the advantages the United States derives from possessing a single currency. Yet, the losses resulting from this policy have too often been ignored. ; This article briefly reviews the costs and benefits of currency integration as articulated in the traditional optimal currency area literature. For the first time a full-employment model is used to examine the cost to currency unification derived from diversity among countries ...
Journal Article
Is the EMU a viable common currency area? a VAR analysis of regional business cycles
Many commentators are skeptical about the long-run viability of the European Monetary Union (EMU). This article compares the EMU with a well-functioning currency union, the U.S., and finds that they are similar based on key criteria. On the basis of this analysis, the EMU may be as viable as the U.S. monetary union.
Working Paper
Monetary and financial integration in the EMU: Push or pull?
A number of studies have recently noted that monetary integration in the European Monetary Union (EMU) has been accompanied by increased financial integration. This paper examines the channels through which monetary union increased financial integration, using international panel data on bilateral international commercial bank claims from 1998-2006. I decompose the relative increase in bilateral commercial bank claims among union members following monetary integration into three possible channels: A "borrower effect," as a country's EMU membership may leave its borrowers more creditworthy ...
Report
Europe and the Maastricht challenge
The uncertainty caused by the exchange rate crises of 1992-93 led to two questions: Is monetary union still feasible? What strategies are best for achieving convergence according to the Maastricht criteria? This article addresses these questions by examining the progress made by the five major European Union countries in satisfying the Maastricht criteria and the two crucial impediments facing these countries--disparities in real exchange rate convergence and fiscal imbalances--and alternative strategies to deal with these impediments. Overall, our analysis suggests that the prospects for ...
Working Paper
Expected and predicted realignments: the FF/DM exchange rate during the EMS
An empirical model of time-varying realignment risk in an exchange rate target zone is developed. Expected rates of devaluation are estimated as the difference between interest rate differentials and estimated expected rates of depreciation within the exchange rate band, using French Franc/Deutsche Mark data during the European Monetary System. The behavior of estimated expected rates of depreciation accord well with the theoretical model of Bertola-Svensson (1990). We are also able to predict actual realignments with some success.
Working Paper
Speculative attacks on pegged exchange rates: an empirical exploration with special reference to the European Monetary System
This paper presents an empirical analysis of speculative attacks on pegged exchange rates in 22 countries between 1967 and 1992. We define speculative attacks or crises as large movements in exchange rates, interest rates, and international reserves. We develop stylized facts concerning the univariate behavior of a variety of macroeconomic variables, comparing crises with periods of tranquility. For ERM observations we cannot reject the null hypothesis that there are few significant differences in the behavior of key macroeconomic variables between crises and non-crisis periods. This null ...