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Small open economies within a monetary union have a limited range of stabilisation tools, as area-wide nominal interest and exchange rates do not respond to country-specific shocks. Such limitations imply that imbalances can be difficult to resolve. We assess the role that government spending can play in mitigating this issue using a global DSGE model, with an extensive fiscal sector allowing for a rich set of transmission channels. We find that complementarities between government and private consumption can substantially increase spending multipliers. Government investment, by raising productive public capital, improves external competitiveness and counteracts external imbalances. An ex-ante budget-neutral switch of government expenditure towards investment has beneficial effects in the medium run, while short-run effects depend on the degree of co-movement between private and government consumption. Finally, spillovers from a fiscal stimulus in one region of a monetary union depend on trade linkages and can be sizeable.

Building on the New Area Wide Model, we develop a 4-region macroeconomic model of the euro area and the world economy. The model (EAGLE, Euro Area and Global Economy model) is microfounded and designed for conducting quantitative policy analysis of macroeconomic interdependence across regions belonging to the euro area and between euro area regions and the world economy. Simulation analysis shows the transmission mechanism of region-specific or common shocks, originating in the euro area and abroad.

Efficiency and Formation of Expectations in Exchange Markets
The aim of this article is twofold : first to analyse the efficiency properties of the French franc and the American dollar exchange markets : second, to determine the nature of exchange rate expectations in these markets for monthly and quarterly horizons over the period 1980- 1990.
The efficiency test — based on the joint hypothesis of no risk and no bias — takes into account the possible non stationarity of the time series and the possible interaction between currencies — the French franc, American dollar, British pound, Japanese yen, Deutsche mark and the Italian lira. We conclude that only the franc- dollar and the mark- franc exchange markets are efficient over this period.
The rejection of efficiency in other markets leads us to examine three processes of expectations formation : adaptive, extrapolative and regressive. Actually, the heterogeneity of expectations according to the horizon is a possible explanation of inefficiency. More generally, the determination of the nature of these expectations allows us to understand the evolution of the expected exchange rate.
In continuous time modelling where we notably avoid an arbitrary expression of unobservable variables such asthe exchange target, we conclude that exchange rate expectations of the dollar, the pound, and the yen vis-à-vis the franc, and the mark vis-à-vis the dollar are regressive for both horizons — monthly and quarterly. Since the nature of these expectations is homogenous, it cannot be an explanation of the inefficiency of the corresponding exchange markets.