A market-based view of European Monetary Union
A discussion of European economic integration, noting that monetary union is of secondary importance to free markets in pushing Europe toward its economic potential.
How natural is the natural rate of unemployment in Europe?
European economic performance has been disappointing in the 1980s. High unemployment has been a dominant policy issue, but in order to react properly, government authorities had to determine the causes of this unemployment. If inadequate aggregate demand were the source, expansionary fiscal or monetary policy could help to solve the problem; on the other hand, if movements in labor supply were to blame, traditional macro policy would be ineffective. European officials clearly leaned toward the labor supply explanation, as aggregate deman policy remained conservative throughout the decade. ; ...
Europe in 1992
The transition to E.M.U.: structural and strategic aspects
The recurrent crises in the EMS have bolstered a lively debate about the transition to EMU. Indeed the political economy of regional integration is at odds with the theory of optimum currency areas. Essentially static and based on real criteria alone, the latter is not suited to deal with a process which has historical roots, political ends, real and nominal dimensions. The relevant concept is convergence. ; Part I first discusses the interplay of nominal and real convergence, then examines the structural and behavioural asymmetries between European countries. It shows why convergence is not ...
Fiscal consolidation in Europe
The Maastricht Treaty imposes constraints on fiscal policy that will last beyond the formation of EMU. However, the fiscal requirements are determined in an ad hoc way, and do not consider the position of the countries in the business cycle, nor the medium-term planning horizons of the governments. In this paper, we revisit the concept of "sustainability" of deficits announced in the treaty. After discussing the cyclical and the structural aspects of total deficits that occurred until 1994, we use an intertemporal, forward-looking approach to evaluate the fiscal stands of the countries ...
The term structure of interest rates and its role in monetary policy for the European Central Bank
This paper examines the relationship of the term structure of interest rates to monetary policy instruments and to subsequent real activity and inflation in both Europe and the United States. The results show that monetary policy is an important determinant of the term structure spread, but is unlikely to be the only determinant. In addition, there is significant predictive power for both real activity and inflation. The yield curve is thus a simple and accurate measure that should be viewed as one piece of useful information which, along with other information, can be used to help guide ...
On intertemporal general-equilibrium reallocation effects of Europe's move to a single market
This paper provides intertemporal general-equilibrium investigation of the welfare and employment consequences of Europes move to a unified market, using a multicountry, multisector applied model with imperfect competition, increasing returns-to-scale, and product differentiation at the firm level. The oligopolistic game between firms is assumed to be Nash in output. In the short-term, market imperfections (such as oligopolistic profits and wage rigidities) may exist. These imperfections vanish in the long run, characterized by stock-flow equilibrium consistent with steady-state growth. ...
European business cycles: new indices and analysis of their synchronicity
This article presents a new type of business-cycle index that allows for cycle-to-cycle comparisons of the depth of recessions within a country, cross-country comparisons of business-cycle correlation and simple aggregation to arrive at a measure of a European business cycle. The paper examines probit-type specifications of binary recession/expansion variables in a Gibbs-sampling framework, wherein it is possible to incorporate time-series features to the model, such as serial correlation, heteroskedasticity and regime switching. The data-augmentation implied by Gibbs sampling generates ...
Lessons from the United States and European Community for the integration of high and low income economies
This paper draws on the experiences of the United States and European Community to speculate on the effects of agreements to integrate high and low income economies. The evidence suggests that reducing barriers to the flow of goods or resources will promote convergence, even among integrating countries with disparate incomes. Convergence may be slow, however, even when impediments to integration are significantly lowered. Institutional constraints can have substantial influence on economic growth and convergence, and the nature and effects of integration agreements will depend on the ...
Currency appreciation and "deindustrialization": a European perspective
During the 1980s, policy advisers were successful in promoting the view that movements in the value of the dollar have an inverse relationship to U.S. international competitiveness. This article explains their hypothesis, as well as the counterargument that exchange rates positively reflect a country's competitiveness. Economic policies that boost competitiveness also raise the value of the domestic currency. The mirror image of these hypotheses apply to U.S. trading partners, including Europe. The evidence indicates that European countries were not "deindustralized" from 1985 to 1990, when ...