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Report
Menu costs at work: restaurant prices and the introduction of the euro
Restaurant prices in the euro area saw an unprecedented increase after the introduction of the euro. We use an extension of commonly used models of sticky prices and argue that the increase in restaurant prices can be explained by menu costs. The extension we use involves the state-dependent decision of firms about when to adopt the euro. Two main mechanisms drive the result. First, our model concentrates otherwise staggered price increases around the introduction of the euro. Second, before the adoption of the euro, prices do not reflect marginal cost increases expected to occur after the ...
Working Paper
The road to adopting the euro: monetary policy and exchange rate regimes in EU candidate countries
This paper examines the choice of exchange rate regime in EU candidate countries during the process of accession to the European Monetary Union (EMU). In the presence of real exchange rate appreciation due to the Balassa-Samuelson effect, candidate countries face a trade-off between trend appreciation of the nominal exchange rate and high inflation rates. In a general equilibrium model of an emerging market economy, we show that under a fixed or heavily managed exchange rate the Balassa-Samuelson effect might prevent compliance with the Maastricht inflation criterion, unless a contractionary ...
Speech
Greece and the Euro
Global Interdependence Center, Annual Black Tie Gala in Celebration of Greece, Philadelphia, Penn., July 25, 2007
Journal Article
Continental divide : how did the European debt crisis become so severe?
Related links: https://www.richmondfed.org/-/media/richmondfedorg/publications/research/econ_focus/2010/q3/feature1_weblinks.cfm
Journal Article
Is Poland the next Spain?
The authors revisit Western Europe?s record with labor?productivity convergence and tentatively extrapolate its implications for the future path of Eastern Europe. The poorer Western European countries caught up with the richer ones through both higher rates of physical capital accumulation and greater total factor productivity (TFP) gains. These (relatively) high rates of capital accumulation and TFP growth reflect convergence along two margins. One margin (between industries) is a massive reallocation of labor from agriculture to manufacturing and services, which have higher capital ...
Working Paper
The role of labor markets for Euro area monetary policy
In this paper, we explore the role of labor markets for monetary policy in the euro area in a New Keynesian model in which labor markets are characterized by search and matching frictions.> We first investigate to which extent a more flexible labor market would alter the business cycle behavior and the transmission of monetary policy. We find that while a lower degree of wage rigidity makes monetary policy more effective, i.e. a monetary policy shock transmits faster onto inflation, the importance of other labor market rigidities for the transmission of shocks is rather limited. Second, ...
Working Paper
Do European capital flows comove?
We study the cross-sectional correlations of net, total, and disaggregated capital flows for the major source and recipient European Union countries. We seek evidence of changes in these correlations since the introduction of the euro to understand whether the European Union can be considered a unique entity with regard to its international capital flows. We first use Ng's (2006) "uniform spacing" methodology to rank cross-sectional correlations (i.e., which flows comove more) and to shed light on potential common factors driving international equity flows. We find that a common factor ...
Journal Article
Integration and globalization: the European bellweather
The European Union owes its very existence to the economic integration that defines today?s increasingly global economy. From the ashes of World War II, six core European nations forged a coal-and-steel community designed to foster industrial competitiveness. Over time, the nations realized that a common market would best promote European growth, and the mission gradually broadened to include the general goal of ever-closer union. ; Successive waves of integration raised membership to 15 countries a decade ago, then to 25 today, with Turkey and several other nations eager to join in the near ...
Speech
Testimony on the economic and fiscal challenges facing Europe
Testimony before the Subcommittee on Domestic Monetary Policy and Technology, Committee on Financial Services, United States House of Representatives, Washington, D.C.
Working Paper
Gains from financial integration in the European union: evidence for new and old members
We estimate potential welfare gains from financial integration and corresponding better insurance against country-specific shocks to output (risk sharing) for the twenty-five European Union countries. Using theoretical utility-based measures we express the gains from risk sharing as the utility equivalent of a permanent increase in consumption. We report positive potential welfare gains for all the EU countries if they move toward full risk sharing. Ten country-members who joined the Union in 2004 have more volatile or counter-cyclical consumption and output and would obtain much higher ...