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We study the effects of fiscal devaluations on the trade balances of European Union countries over the 2000-2014 period using bilateral trade balance data. This enables us to control for the coincidence of tax policy measures in different countries, which is an aspect left unconsidered in previous econometric studies. A fiscal devaluation consisting of a budget-neutral tax shift in the amount of 1% of gross domestic product (GDP) from employers’ social security contributions to value added tax leads to a short-term improvement of bilateral trade balance ranging between 0.3 and 0.6% of GDP. An extrapolation of our baseline estimate to the overall trade balance yields an impact of 4.3% of GDP for the whole sample, which is slightly higher than presented in previous empirical research. Applying extrapolation to the trade deficit countries in the euro area shows that these countries’ balance of trade with the rest of the euro area improves by only 0.75% of GDP. Thus, the magnitude of the fiscal devaluation impact on the trade balance varies significantly across countries, depending on their trade openness, among other potentially relevant factors. [ABSTRACT FROM AUTHOR]

The present article examines 10-year bond yields convergence between each of the new EU countries and Germany, including a structural break that embodies the effects of the current sovereign debt crisis in the Eurozone. The analysis is based on a new definition of bond yields convergence that can be interpreted either as strong or weak monetary policy convergence, depending on whether the conditions of uncovered interest-rate parity and ex-ante purchasing power parity hold or are violated, respectively. The empirical results provide evidence of either strong or weak monetary policy convergence to Germany only for five new countries, namely Croatia, the Czech Republic, Lithuania, Romania and Slovakia. In contrast, for the rest of the new EU countries the empirical evidence suggests lack of monetary policy convergence to Germany. The latter result could be probably explained by the increased risk premia in these countries, as a result of the Eurozone sovereign debt crisis. [ABSTRACT FROM AUTHOR]

EU Member States, particularly in the Euro Area, have been pushed to adopt more extensive and intrusive fiscal rules, but what is the evidence that the rules are succeeding? The EU level Stability and Growth Pact (SGP) has been – and remains – the most visible rule-book, but it has been complemented by a profusion of national rules and by new provisions on other sources of macroeconomic imbalance. Much of the analysis of rules has concentrated on their technical merits, but tends to neglect the political economy of compliance. This paper examines the latter, looking at compliance with fiscal rules at EU and Member State levels and at the rules-based mechanisms for curbing other macroeconomic imbalances. It concludes that politically driven implementation and enforcement shortcomings have been given too little attention, putting at risk the integrity and effectiveness of the rules. [ABSTRACT FROM AUTHOR]

A simple theoretical model of monetary unification and data from 11 euro members are used to investigate the common currency's role in the macroeconomic performance of these countries. Euro membership has been typically accompanied by lower (or steady) inflation, but also by higher business-cycle volatility. In addition, synchronization of cyclical output was substantially affected by the common currency only in Greece (where it declined considerably) and Finland and Ireland (where it increased). Consistent with the theoretical predictions, the empirical evidence shows a strong negative relationship between cyclical synchronizations and volatilities, which however is not much stronger under the euro than it was during the Maastricht period. [ABSTRACT FROM AUTHOR]

This paper analyses the international transmission of monetary policy in the case where all export prices are set in US dollars. 'Dollar pricing' implies that the international effects of US monetary shocks are different from those of European shocks because of an asymmetric exchange rate pass-through to import prices. A dollar pricing model can explain the observed asymmetry in the transmission of monetary policy: US monetary policy affects US output more than European monetary policy affects European output. I also show that the current account is an important channel through which monetary policy affects welfare. The paper concludes that under dollar pricing a monetary expansion is a beggar-thy-neighbour policy. [ABSTRACT FROM AUTHOR]