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In the decade since its creation in 1999, the European Economic and Monetary Union (EMU) has experienced surprisingly large and persistent inflation differentials across member states causing substantial shifts in relative price levels. At the same time, member countries exhibited distinct non-synchronized output fluctuations, giving rise to a pattern of 'rotating slumps' (a term coined by Olivier Blanchard). This paper presents a stylized theoretical model of a monetary union which demonstrates how inflation differentials and relative output movements interact dynamically. A number of implications are derived from the model. In particular, national fiscal policies are shown to have an important role in containing internal macroeconomic disparities in a monetary union. An optimal fiscal policy rule is derived from the model for that purpose.

This paper discusses possible links between monetary arrangements in particular monetary union and economic growth. It is stressed that growth depends ultimately on how the real economy works: there is no monetary magic that can conjure up growth. But monetary policy can contribute to conditions for sustainable growth by securing and maintaining price stability; monetary union might extend this. It might also deepen the single market. The elimination of nominal exchange rate movement among members of the union removes some sources of shock but also some ways of adjusting to shocks. This underlines the importance of other adjustment mechanism especially supply-side flexibility, which is crucial for growth in any event.

The closed economy macro literature has shown that a liquidity trap can result from the self-fulfilling expectation that future inflation and output will be low (Benhabib et al. (2001)). This paper investigates expectations-driven liquidity traps in a two-country New Keynesian model of a monetary union. In the model here, country-specific productivity shocks induce synchronized responses of domestic and foreign output, while country-specific aggregate demand shocks trigger asymmetric domestic and foreign responses. A rise in government purchases in an individual country lowers GDP in the rest of the union. The result here cast doubt on the view that, in the current era of ultra-low interest rates, a rise in fiscal spending by Euro Area (EA) core countries would significantly boost GDP in the EA periphery (e.g. Blanchard et al. (2016)). ; info:eu-repo/semantics/published

Establishing a single currency will launch the EU on a journey into the unknown. Thus while it is widely accepted that the fall-out from this decision will be far-reaching, little consensus exists on the impact on particular policy arenas. This article explores some of the main implications of monetary union for Social Europe-national systems of welfare pro vision and employment regulation. It is argued that efforts by virtually all the member states to meet the Maastricht criteria for joining the single currency club are impacting negatively on Social Europe. Moreover, with the member states signing a deflation-oriented Stability Pact, this cold climate threatens to spill over into the actual operation of the new Euro- zone. Thus the road to monetary union paved by Europe's political elite spells bad news for already beleaguered welfare and employment systems. At the same time, the article argues that a different form of monetary union is necessary to create more robust macroeco nomic foundations to Social Europe. At present, it is suggested that a big coordination deficit has emerged inside the European economy, causing an inhospitable environ ment for the social dimension in the absence of a single currency. Thus retreating to national mechanisms for economic management is rejected as an alternative project to the Maastricht plan for monetary union. Finally, the article investigates the viability of various reform paths to make the new Euro-zone more socially friendly.

No doubt the monetary measures taken by the Government of the Federal Republic on May 10 have caused quite a stir. The question is: Can the European economic and monetary union still be achieved, in spite of the German measures?

In the aftermath of the global financial crisis, sovereign default risk and the zero lower bound have limited the ability of policy-makers in the European monetary union to achieve their stabilization objective. This paper investigates the interaction between sovereign default risk and the conduct of monetary policy, when borrowers can act strategically and they share with their lenders a single currency in a monetary union. We address this question in an endogenous sovereign default model of heterogeneous countries in a monetary union, where the monetary authority may be constrained by the zero lower bound. We uncover three main results. First, in normal times, debtors have a stronger incentive to default to induce more expansionary monetary policy. Second, the zero lower bound, or constraints on monetary policy may act as a disciplining device to enforce repayment of sovereign debt. Third, sovereign default risk induces countries with a preference for tight monetary policy to accept a laxer policy stance. These results help to shed light on the recent European experience of high default risk, expansionary monetary policy and low nominal interest rates. ; The ADEMU Working Paper Series is being supported by the European Commission Horizon 2020 European Union funding for Research & Innovation, grant agreement No 649396.

We study the monetary-fiscal mix in the European Monetary Union. The medium and long-run effects of conventional and unconventional monetary policy are analysed by combining monetary policy shocks identified in a Structural VAR, and the general government budget constraint featuring a single central bank and multiple fiscal authorities. In response to a conventional easing of the policy rate, the cumulated response of the fiscal deficit is positive. Conversely, in response to an unconventional easing affecting the long end of the yield curve, the primary fiscal position barely moves. This is consistent with the long-run effect of unconventional monetary easing on the price index, which is about half that of conventional easing. The aggregate long-run cumulated surplus is mainly driven by Germany's fiscal policy during the period in which unconventional monetary policy was adopted.

We study the monetary-fiscal mix in the European Monetary Union. The medium and long-run effects of conventional and unconventional monetary policy are analysed by combining monetary policy shocks identified in a Structural VAR, and the general government budget constraint featuring a single central bank and multiple fiscal authorities. In response to a conventional easing of the policy rate, the cumulated response of the fiscal deficit is positive. Conversely, in response to an unconventional easing affecting the long end of the yield curve, the primary fiscal position barely moves. This is consistent with the long-run effect of unconventional monetary easing on the price index, which is about half that of conventional easing. The aggregate long-run cumulated surplus is mainly driven by Germany's fiscal policy during the period in which unconventional monetary policy was adopted.

Diese Dissertation beschäftigt sich mit drei Problemen von Staatsschulden, die während der jüngsten Finanz- und Wirtschaftskrise in der Eurozone aufgetreten sind. Sie untersucht zunächst die Frage ob die Zinssätze auf Staatsanleihen in einer Währungsunion von ökonomischen Fundamentaldaten oder von Marktstimmungen bestimmt werden. Zu diesem Zweck werden Techniken von Ereignisstudien verwendet um die Reaktion von langfristigen Zinssätzen auf unterschiedliche Kategorien von Neuigkeiten über Änderungen in Fundamentaldaten zu analysieren. Sie kommt zu dem Schluss, dass man zwar eine signifikante Reaktion auf manche solcher Neuigkeiten feststellen kann, dass es aber keine feste Beziehung zwischen Änderungen in den Fundamentaldaten und Zinsen gibt, die über alle Länder hinweg stabil ist. Der zweite Teil der Dissertation behandelt die Frage wie die Nachhaltigkeit von Staatsfinanzen empirisch beurteilt werden kann. Darin wird ein empirisches Modell von Staatsschulden entwickelt und geschätzt, das in der Lage ist die Wahrscheinlichkeitsverteilung der Schulden-BIP-Quote zu jedem zukünftigen Zeitpunkt darzustellen. Für den Anwendungsfall Österreich deuten Vorhersagen auf Basis dieses Modells darauf hin, dass der Anstieg in der Schulden-BIP-Quote, der während der Eurokrise zu beobachten war, eher als transitorisches Randereignis und nicht als Hinweis auf ein langfristiges Nachhaltigkeitsproblem gesehen werden sollte. Die dritte Frage betrifft die Übertragung des Risikos eines Staatsschuldenausfalls auf den Rest der Volkswirtschaft. Um diese Frage zu untersuchen stellt die Dissertation ein Konjunkturmodell vor, in dem der Finanzsektor Staatsanleihen als Sicherheiten hält. In diesem Modell kann ein Anstieg der Ausfallwahrscheinlichkeit sowohl zu einer Kreditklemme als auch zu einer fallenden Güterproduktion führen. Wenn man das Modell zu Daten der Eurozone kalibriert, kann es einige wichtige stilisierte Fakten der Eurokrise erklären. ; This dissertation deals with three issues of public debt that emerged during the recent financial and economic crisis in the Eurozone. It first investigates the question whether the interest rates on government bonds in a monetary union are determined by economic fundamentals or market sentiments. For this purpose it uses event study techniques to analyze the reaction of long-term government interest rates to different categories of news about changes in fundamentals. It concludes that there is a significant reaction to some such events, but that there is no tight empirical link between changes in fundamentals and interest rates that is stable across countries. The second part of the dissertation addresses the question how the sustainability of government finances can be assessed empirically. It develops and estimates an empirical model of government debt that is able to characterize the probability distribution of the debt-GDP ratio at any future date. For the case of Austria, debt projections based on this model indicate that the increase in the debtGDP ratio that occurred in the aftermath of the Eurozone crisis should be seen as a transitory tail event rather than a sign of long-run unsustainability. The third issue concerns the transmission of government default risk to the rest of economy. The dissertation studies this issue by building a business cycle model with a financial sector that holds government bonds as collateral. In this model, an increase in the probability of default can lead both to a credit crunch and a decline in output. It shows that, when calibrated to Eurozone data, the model is able to explain some key stylized facts of the Eurozone crisis. ; Maximilian Gödl ; Zusammenfassung in deutscher und in englischer Sprache ; Karl-Franzens-Universität Graz, Dissertation, 2017 ; OeBB ; (VLID)2004028

Inflation differentials in Europe have narrowed substantially since the inception of the European Monetary System in 1979. However, their persistence after more than a decade raises the question of why these differentials are so difficult to eliminate. Some European Community countries systematically use seignorage—financing government expenditures with money creation—while others do not. This increases the difficulty of achieving the convergence of monetary policies and inflation rates required for irrevocably fixed exchange rates in Europe. This paper, utilizing a model of government finance that minimizes the social cost of financing government expenditures, examines monetary finance in the European Community. It rejects soundly the social cost minimization model of seignorage collection.