Search

The massive financial instability of 2007–08 was, in the main, the result of lax monetary policy. Regulation compounded this error by allowing and encouraging excessive leverage and maturity transformation by banks. Innovation did contribute to reckless credit expansion and investments, but without lax money and excessive leverage, reckless bets on asset price increases would not have been possible. Therefore, a repeat of this instability could be avoided by correcting these two policy faults. There is no need for intrusive rules constraining non-bank intermediaries and financial innovation. The main message is: keep it simple. [ABSTRACT FROM AUTHOR]

Examines the theory of monetary policy when the monetary authority faces asymmetries in the countries constituting the monetary union. Background on the monetary policy regime in Europe; Overview of the two-country model and the model under asymmetric shocks; Graphical interpretation of the results; Conclusion.

Does banking union exacerbate the European Union's democratic deficit? Using Scharpf's 'input' and 'output' legitimacy concepts, it is argued in this article that its design does worsen the democratic deficit. There are good reasons to limit 'input legitimacy' for politically independent institutions. 'Output legitimacy' is then even more relevant. Transparency is a key part of 'output legitimacy'. It enables actors to judge whether the regulator is acting in the public's interest and can improve their outputs. This article focuses on the banking data that the supervisors collect. Data available to the European public is evaluated and compared to America's banking union. European practices are not comparable in terms of availability or detail. An original survey of relevant officials is conducted, which results in the finding that only 11 of 28 Member States release any information on the banks they supervise. Both EU and national supervisors should provide publicly available, timely and consistent individual bank data. [ABSTRACT FROM AUTHOR]

The monetary policy framework of the Eurosystem has received considerable attention in recent years: there is a well-established and rich literature on the price stability objective, as well as the two-pillar strategy of the ECB. This is less the case for the regular monetary policy preparations and the decision-making process. This article provides an insider's roadmap to the procedures to prepare monetary policy decisions by the Governing Council of the ECB. The architecture of the Eurosystem permits the processing and analysis of a vast amount of national and aggregate economic, financial and monetary data and assists the Governing Council in taking monetary policy decisions – and this each month. Our aim is to describe the role of a variety of committees and sub-committees that prepare and support the monetary policy decision-making process. A federal organization is at the heart of this process. At the top of the pyramid of information there is a two-tiered committee structure with the Executive Board taking the lead in bringing together most of the economic, financial and monetary analyses, and the Governing Council utilizing that information, for its monthly economic and monetary analyses. [ABSTRACT FROM AUTHOR]

Strong symmetry of shocks allows for the formation of a monetary union with low costs due to losing monetary sovereignty. I employ vector autoregression to identify structural shocks and study their symmetry through time. I find that the underlying structural shocks have not changed significantly and remain rather asymmetric, particularly demand shocks. [ABSTRACT FROM AUTHOR]

The belief that the European Central Bank (ECB) follows the US Federal Reserve (the Fed) in setting its policy is so entrenched with market participants and commentators that the search for empirical support would seem to be a trivial task. However, this is not the case. We find that the ECB is indeed often influenced by the Fed, but the reverse is true at least as often if one considers longer sample periods. There is empirically little support for the proposition that there has for a long time been a systematic asymmetric leader-follower relationship between the ECB and the Fed. Only after September 2001 is there more evidence of such an asymmetry. There is a clear-cut structural break between the period pre-economic and monetary union (EMU) and EMU itself in terms of the relationship between short-term interest rates on both sides of the Atlantic. [ABSTRACT FROM AUTHOR]

This article provides an analytical discussion of the adjustment to EU accession for an economy under alternative assumptions about monetary policy rules. The post-accession phase is characterized by rapid capital inflows and real exchange rate appreciation. If accession is combined with membership of the euro area and a pegged exchange rate, then the post-accession period exhibits excessive foreign borrowing, high wage inflation, an excessive stock market boom, and much too rapid growth in the non-traded sector at the expense of the exportable goods sector. Alternative monetary policies can be used to eliminate the inefficiencies of the post-accession adjustment, but some bring real costs in terms of lower growth and unemployment. We find that the best policy is one of flexible inflation targeting with some weight on exchange rate stability. In the absence of exchange rate adjustment, fiscal policy could be used, but this requires complicated time-varying expenditure taxes. While the analytical discussion emphasizes the benefits of exchange rate adjustment, a later section of the article explores some more recent arguments regarding non-traditional costs of exchange rate volatility. [ABSTRACT FROM AUTHOR]

Provides information on the developments in the economies of 15 European Union Member States in 2002 and their implications for European integration. Increase in the growth of gross domestic product of most member countries; Economic implications of cuts in short-term interest rates; Changes in the fiscal and monetary policies.

Abstract Using stochastic simulations, this article analyses the probability distribution of a country's deficit ratio under fixed exchange rates and a variety of monetary and fiscal policy rules. The purpose is to show how the probability of an ‘excessive deficit’, defined by Europe's Stability Pact as a deficit to GDP ratio above 3 per cent, varies with different deficit targets and policy rules. Using a macro model, we find that when subject to historically consistent shocks, these fiscal ratios typically have a wide distribution, with fat tails and significantly longer tails on the upper side. That means fiscal targets may have to be country-specific and conservative, and that fiscal policy has to be forward-looking to keep the probability of excessive deficits below acceptable limits. [ABSTRACT FROM AUTHOR]

This article explores the sources of the German govermnent’s position on European monetary integration since the first attempt at monetary union. I argue that German policy on European monetary integration was, until after EMU, driven by German foreign policy elites’ perception that integration could be used to achieve their primary geo-political goal, embedding Germany in European institutions to dismantle the security dilemma with its European neighbours, particularly with France. After the signing of the Maastricht Treaty, this situation was reversed, as domestic economic interests and state financial authorities have taken the lead in shaping Germany’s policy on European monetary integration, with foreign policy elites playing a secondary role. Thus German policy has come to resemble more the policies of other European monetary union member states, in that domestic economic concerns have taken precedence over geo-political interests in the making of policy on European monetary integration. [ABSTRACT FROM AUTHOR]

The performance of the European Monetary System is still being debated. On the subject of exchange rate characteristics it has been claimed that evidence from looking at the statistical properties of the exchange rate distribution indicates an increased risk for agents. Others argue that the apparent success of the EMS is illusory, as it has not performed better than other currencies over the same period. We analyse these propositions by searching for trends in risk of EMS exchange rates and comparing them to outside benchmarks. We find properties indicating decreasing risk and these results also hold when structural breaks are considered. Moreover, this decline seems to be faster than for world benchmarks. [ABSTRACT FROM AUTHOR]

Presents information on a study which focused on the critical foundation for European monetary integration which is the neoliberal economic policy convergence that occurred many years back in European history. Ideas and policy concensus in monetary co-operation; Information on the macroecpnomic policy in Europe.

Proposes an alternative explanation of the existence and longevity of the European Monetary System (EMS). Need to understand monetary integration within the context of the mode of economic integration chose by the original European Community (EC) members; Contradiction between fluctuation internal exchange rates and the EC's Common Agricultural Policy.

Assesses the operation of the European Monetary System (EMS) from March 1979 to 1984. Factors contributing to success of the EMS; Aims and scope of EMS; Implications of the international monetary crisis of 1971; Large exchange rate changes resulting from divergent monetary policies.

Examines the cooperation between the international monetary system and Europe's monetary policy. Unilateral devaluation of dollar; Limits on convertibility of currency of international reserve center; Collapse of Bretton Woods system.