Suchergebnisse

We propose a continuous time model to investigate the impact of inflation credibility on sovereign debt dynamics. At every point in time, an impatient government decides fiscal surplus and inflation, without commitment. Inflation is costly, but reduces the real value of outstanding nominal debt. In equilibrium, debt dynamics is the result of two opposing forces: (i) impatience and (ii) the desire to conquer low inflation. A large increase in inflation credibility can trigger a process of debt accumulation. This rationalizes the sovereign debt booms that are often experienced by low inflation credibility countries upon joining a currency union.

We use a two-country model with a central bank maximizing union-wide welfare and two fiscal authorities minimizing comparable, but slightly different country-wide losses. We analyze the rivalry between the three authorities in seven static games. Comparing a homogeneous with a heterogeneous monetary union, we find welfare losses to be significantly larger in the heterogeneous union. The best-performing scenarios are cooperation between all authorities and monetary leadership. Cooperation between the fiscal authorities is harmful to both the whole union's and the country-specific welfare.

This contribution to the panel on the future to EMU discusses the tensions that arise from the fact that banks are, on the one hand, an essential element of the monetary transmission mechanism and, on the other hand, an integral part of local, regional or national polities. Banking union can eliminate or at least reduce some of the procrastination that has allowed maintained bank weaknesses to persist and harmed the transmission of monetary policy but, whereas the SSM has been fairly successful, resolution is still not working properly and needs further reforms. At the same time, banking union suffers from the problem that interventions from Brussels or Frankfurt are seen as infringements of national sovereignty that lack political legitimacy. The conflict between supranational and national interests is ultimately irresolvable but, if EMU is to survive, measures must be taken to limit its impact.

Twenty-five years ago, East Germany adopted the deutschmark as its currency. In terms of East German economic development, monetary union proved to be a disaster. With virtually no warning, East Germany's few productive factories and businesses were exposed to free market competition; industrial production collapsed in a way unparalleled in history. Nevertheless, for political reasons, introducing monetary union at the start of the process of system transformation was almost unavoidable. Given the insecure foreign policy situation, the aim was to seize the chance of reunification and push through monetary union to create an irreversible fait accompli. Moreover, this move was intended to put a brake on the massive exodus of people from East Germany. Admittedly, it also buttressed the widespread illusion among the East German population that a strong currency would facilitate fast-track income parity on West German levels. This illusion, however, also encouraged excessive wage hikes which only served to intensify the shock of alignment in summer 1990, complicate economic renewal in eastern Germany, and increase the financial costs.

Main description: This volume contains the contributions of a conference dealing with the consequences of the European Monetary Union for the macroeconometric modelling of the Euro area, which took place in Essen in 2000. At the end of the conference the participants were convinced that the discussions including a great variety of theoretical, methodical and factual aspects from the producers' as well as the consumers' perspective will not fail to have a certain impact on the future development of macroeconometric modelling in the Euro area.Once more it became clear, however, that an ideal way to a solution of the problems is still not in sight. The future development will be characterized by a plurality of approaches and models. Thus trends continue which have had a more or less strong, durable or temporary influence on the model landscape since the emergence of the monetarist revolution, the "rational expectations" or the "real business cycle"-models. We are still at the beginning of the theoretical and empirical exploration of the macroeconomic development of the Euro area, it is not always clearly perceptible what is transitory and what is permanent, and this openness should facilitate the reception of the experiences and results which have been presented.The idea for this event was developed in the course of the Project LINK. One of the highlights of the conference was the participation of the nobel prize winner Professor Dr. Lawrence Klein - pioneer and Nestor of macroeconometric modelling - who, as his contribution shows, is following up the creation of the European Monetary Union with critical interest

This book explains the political background and describes the decision-making leading to European Monetary Union, as seen by a former central banker who participated in the process during more than two decades. Political rather than economic considerations were decisive in establishing EMU. French-German relations in particular form a thread that runs through the book, notably French efforts to replace German monetary domination by a form of decision-making France can influence. Thus, the issues involved are issues of power, though often presented in technical terms of economics.

This book studies the coexistence of inflation and unemployment in a monetary union. The focus is on how to reduce the associated loss. The primary target of the European central bank is low inflation in Europe. The primary target of the German government is low unemployment in Germany. And the primary target of the French government is low unemployment in France. The European central bank has a quadratic loss function. The same applies to the German government and the French government. The key questions are: To what extent can the sequential process of monetary and fiscal decisions reduce the loss caused by inflation and unemployment? Is monetary and fiscal cooperation superior to the sequential process of monetary and fiscal decisions?

We use the two-country model of the euro area developed by Quint and Rabanal (2014) to study policymaking in the European Monetary Union (EMU). In particular, we focus on strategic interactions: 1) between monetary policy and a common macroprudential authority, and; 2) between an EMU-level monetary authority and regional macroprudential authorities. In the first case, price stability and financial stability are pursued at the EMU level, while in the second case each macroprudential authority adopts region-specific objectives. We compare cooperative equilibria in the simultaneous-move and leadership solutions, each obtained assuming policy discretion. Further, we assess the effects on policy performance of assigning shared objectives across policymakers and of altering the level of importance attached to various policy objectives.

This paper explores the optimal allocation of government bond purchases within a monetary union, using a two-region DSGE model, where regions are asymmetric with respect to economic size and portfolio characteristics: the extent of substitutability between assets of different maturity and origin, asset home bias, and steady-state levels of government debt. An optimal quantitative easing (QE) policy under commitment does not only reflect different region sizes but is also a function of these dimensions of portfolio heterogeneity. By calibrating the model to the euro area, we show that optimal QE favors purchases from the smaller region (Periphery instead of Core), given that the former faces stronger portfolio frictions. A fully optimal policy consisting of both the short-term interest rate and QE lifts the monetary union away from the zero lower bound faster than an optimal interest rate policy alone, which entails forward guidance.

Financial markets in Euroland differ from those of a national monetary union in two regards. First, capital markets in general and banking markets in particular show a greater degree of segmentation than national financial markets as a result of information costs and regulatory barriers to full integration. Second, financial market structures differ among the members of Euroland, which potentially affects the transmission of (monetary) shocks. This paper provides a simple model of a currency union which takes these peculiarities into account, focusing on the interaction of financial structures, the degree of capital mobility, the transmission of shocks, and the portfolio choices of banks.

This book studies the strategic policy interactions in a monetary union. The leading protagonists are the European Central Bank and national governments. The target of the ECB is low inflation in Europe. The targets of a national government are low unemployment and a low structural deficit. There are demand shocks, supply shocks, and mixed shocks. There are country-specific shocks and common shocks. This book develops a series of basic, intermediate, and more advanced models. Here the focus is on the Nash equilibrium. The key questions are: Given a shock, can policy interactions reduce the existing loss? And to what extent can they do so? Another topical issue is policy cooperation. To illustrate all of this there are a lot of numerical examples.

Supranationalist and liberal‐intergovernmentalist theoretical accounts of European Economic and Monetary Union (EMU) largely ignore geopolitical factors. This article argues that geopolitical factors are of vital importance for explaining and understanding EMU. It does this by examining the role of such factors at five crucial moments of the EMU process: (1) the launching of EMU in 1988–89; (2) the uncertain year following the opening of the Berlin Wall in November 1989; (3) the final decisions on EMU taken at the December 1991 Maastricht summit; (4) the ratification and currency crises of 1992–93; and (5) the efforts to implement EMU after the treaty's final ratification in October 1993. A focus on geopolitics, it is argued, fits within a historical‐institutionalist account of European integration.