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AbstractIn 1982 Italy issued ecu-denominated Treasury bonds: the first of a series of issues—followed by Spain, Greece, and France only in the second half of the 1980s—officially aiming at contributing to reduce inflation and ease trading agents with foreign payments. In fact, it was much more than this. It was a small but significant signal that an economic elite was committed to curbing ever-demanding and opaque political pressures to increase public spending and trade-unions to raise wages, both deemed as crucial flaws to be fixed before international competitiveness could be restored. It represented one building block of a wider strategy concerning the use of the external constraint in domestic policymaking and in the attempt to increase the role of Italy in the making of European integration. The paper aims to reconstruct the interconnections between the events that accompanied such choice and the theoretical and intellectual background of the group of key economists that implemented this strategy. [ABSTRACT FROM AUTHOR]

We investigate the relationship between China and the United States’ trade with sub-Saharan Africa (SSA) and the region's economic growth (EG). The research analyzes trade dynamics, distinguishing between the effects of exports and imports, while highlighting the significant role of institutional quality (IQ) in shaping EG within the context of China–US trade with Africa. Despite increasing trade with China and the US, SSA’s growth has lagged, prompting exploration into the specific trade forms contributing to EG and the role of IQ. Using data from 30 SSA countries from 2002-2020, we employed AMG and IV-2SLS estimations for our analysis. The study reveals that IQ complements Chinese and US trade to promote EG. Importantly, Chinese and US imports from Africa consistently boost growth, with the impact of exports diminishing. Chinese trade proves influential in countries with strong institutions but lacks impact in those with weaker institutions at higher levels of IQ. In contrast, US trade benefits growth in both strong and weak institutional contexts. These findings are instrumental for policymakers, offering insights into the specific trade activities that drive growth in SSA. Additionally, we emphasize the pivotal role of robust institutions in ensuring the positive impact of trade on growth. [ABSTRACT FROM AUTHOR]

The role of monetary policy has become increasingly important in recent years, as a range of economic challenges have emerged, affecting both developing and economically advanced countries. The aim of this article is to examine the shift in the monetary policy of the EU, which has been expressed through changes in the tools used by the European Central Bank (ECB), and to consider the causes and economic implications of this shift. The descriptive analytical method was used to achieve this goal. The study identified that the aim of the ECB’s interest rate increases was primarily to slow down core inflation rates. The ECB has raised the refinancing rate from 0.5% to 2.5% in 2022 and halted asset purchase programs, such as the Pandemic Emergency Purchase Programme, which had previously stimulated liquidity growth. Despite these changes, forward guidance has been maintained as a useful tool for providing clarity and certainty to financial markets and the public about the future path of monetary policy. It is concluded in the study that the impact of the shift towards contractionary monetary policy is likely to be felt across a range of economic sectors, with higher borrowing costs potentially leading to reduced investment and lower levels of economic growth.

Portugal is one of the most externally indebted economies in the eurozone. The deeply negative net international investment position (NIIP) suggests that large current account surpluses will be needed in the future to restore external sustainability. Despite significant interest in the scope for external adjustment within a monetary union, little is known about the magnitude or likelihood of the relative price change required to facilitate this adjustment. Drawing on a new probabilistic framework of external sustainability, this paper estimates the likelihood that a real effective depreciation is needed to lower Portugal's net external liabilities to more prudent levels. Contrary to conventional thinking, we find that the NIIP is sustainable without real depreciation with fairly high probability, estimated between 32 and 43 percent. We highlight the predominance of financial account shocks over current account shocks in this assessment. To provide context to the assessment, we also apply the framework to Ireland. Despite a weaker NIIP than in Portugal, the probability that the external position is sustainable in Ireland is higher, estimated between 54 and 60 percent, predominantly reflecting forecasts of large and sustained trade surpluses. [ABSTRACT FROM AUTHOR]

El artículo revisa el rápido ascenso de China en la economía mundial durante las últimas dos décadas y las implicaciones de ello sobre la gobernabilidad económica mundial y, en particular, en las crecientes tensiones de China con los Estados Unidos. Se examinan hitos relevantes como el ingreso de China a la Organización Mundial del Comercio (OMC), la crisis subprime y la pandemia de covid-19. Se documenta el tránsito de la guerra comercial entre ambas potencias a un conflicto por el dominio de las principales tecnologías del siglo XXI. El artículo culmina con una reflexión sobre eventuales impactos de este conflicto en el escenario económico global.

In this study, we will perform a simulation exercise to investigate whether the use of explicit fiscal rules improves the macroeconomic performance in the economic framework of the European Union (EU), where the fall in income levels occurred very asymmetrically, and this has accentuated the social inequality that existed before the recent crises. To evaluate the performance of fiscal rules, we will allow for a fiscal rule keeping the growth of the public expenditure below the growth of the inflation. This special design of the fiscal rule is a novelty in the European context, although the inflation constraint has been successfully implemented in other countries as, for example, Brazil. As the results, we expect to find that before the financial crisis of 2008, the EU public finances keep relatively stable. However, after the crisis, the budget of the member states suffered a significant deterioration. In addition, therefore, we will discuss to which extent the use of proper fiscal rules could help to rationalize fiscal consolidation efforts.

In this paper we revisit the issue of currency regime choice for an independent Scotland using an international macroeconomic/ finance framework. Specifically, we consider the main competing proposals for currency choice with an emphasis on the SNP's official policy of the informal use of sterling post-independence. We conclude that from a macroeconomic perspective this option is unlikley to be credible to international capital markets. The option that would be credible, and avoids the austerity associated with the choice of a fixed exchange rate option, would be a free float at least during the transition period of independence. [ABSTRACT FROM AUTHOR]

This research focuses on the impact of German exports on exports of the other selected EU countries. We used the Global VAR approach to build a robust trade model between 23 EU countries, the USA, and China. By stressing this model with different shocks, we were able to observe how exports of the EU countries react to German loss of competitiveness and decline of demand from Germany. Based on our simulation, we could identify countries which i. are Germany’s competitors and would benefit from German loss of competitiveness, ii. are tied with German trade so tightly that loss of German competitiveness would negatively affect their exports.

The purpose of this paper is to answer the question as to why Germany is cautious towards a faster enlargement of the euro area. The usual explanation focuses on concerns that some of the candidate countries are not economically ready to adopt the common currency and their membership could destabilize the monetary union. However, such an approach does not take into account other factors that may influence Germany’s reluctance to speed up the enlargement process. One of them is the conviction that the existing division of integration does not translate into economic costs and a long-term political cleavage in the EU. Another argument explaining Germany’s position is their doubt about the economic policy preferences of the candidates which may prove to be crucial in the upcoming reform of the euro area governance. Some of them can drift towards more interventionism and support for the debtors’ positions which is at odds with German interest.

Después de una presentación de la evolución de la balanza comercial sino-estadunidense (sección I), proponemos dos métodos para medir el intercambio desigual entre los Estados Unidos y China: uno en consideración del contenido laboral directamente incorporado en el intercambio (sección II); el otro, inspirado en Ricci (2018), se centra en el valor internacional y utiliza tablas de entradas-salidas (sección III), lo que permite esbozar una síntesis de análisis sectorial (sección IV).

This paper assesses capital mobility for the Eurozone countries by studying the long-run relationship between domestic investment and savings for the period 1970-2019. Our main goal is to analyze the impact of economic events on capital mobility during this period. We apply the cointegration methodology in a setting that allows us to identify endogenous breaks in the long-run saving-investment relationship. Precisely, the breaks coincide with relevant economic events. We find a downward trend in the saving-investment retention since the 70s for the so-called "core countries", whereas this trend is not so evident in the peripheral, where the financial and sovereign crises have had a more substantial impact. In addition, our analysis captures other economic events: the Exchange Rate Mechanism (ERM) crisis, the German reunification, the European financial assistance program, and the post-crisis period. Our results also indicate that the original euro design had some flaws that remain unsolved. [ABSTRACT FROM AUTHOR]

Membership in a common currency area is thought to promote economic stability by facilitating macroeconomic convergence, but a country might give up important monetary policy tools that could help stabilize its economy following a shock. The effect of a common currency on macroeconomic volatility can therefore be ambiguous. This study examines five Central and Eastern European countries that joined the Eurozone since 2005; their differences, particularly with regard to the countries’ economic performance and pre-accession exchange-rate regimes, help drive a unique set of results. Structural breaks in the volatility of real output, consumption, and investment generally correspond to events other than Eurozone accession, and Vector Autoregressive methods show that global shocks have more of an impact on output volatility than do regional shocks or economic openness. Spillovers affect Latvia and Lithuania more than Estonia, Slovakia, or Slovenia, which suggests that a unified currency space might have difficulty managing idiosyncratic shocks.

We analyze the conduct of fiscal policy in a financially integrated union in the presence of financial frictions. Frictions create a wedge between the return to investment and the union interest rate. This leads to an over-spending externality. While the social cost of spending is the return to investment, governments care mostly about the (depressed) interest rate they face. In other words, the crowding-out effects of public spending are partly "exported" to the rest of the union. We argue that it may be hard for the union to deal with this externality through the design of fiscal rules, which are bound to be shaped by the preferences of the median country and not by efficiency considerations. We also analyze how this overspending externality—and the union's ability to deal with it effectively—changes when the union is financially integrated with the rest of the world. Finally, we extend our model by introducing a zero lower bound on interest rates and show that, if financial frictions are severe enough, the union is pushed into a liquidity trap and the direction of the spending externality is reversed. At such times, fiscal rules that are appropriate during normal times might backfire. [ABSTRACT FROM AUTHOR]

The euro crisis and its lessons are still not a closed chapter for economists and policy makers. The challenge to find the most appropriate ways to prevent intra-area imbalances is still on the top of the agenda. Nominal adjustment (internal devaluation) remains one of the most critical aspects of this debate. Many are indeed interested in whether austerity measures in several countries "made sense." But much more is at stake here than evaluating the past. The true question is whether the eurozone can rely on nominal adjustment to align internal economic fluctuations. This paper contributes to the answer by investigating the size of price changes and their impacts on output and trade in the wake of the euro crisis. Selecting the most appropriate variables to measure competitive outcomes, the basic idea of "expansionary contraction" is tested. We rely on a comprehensive panel of all Eurozone member states in the post-crisis years (2010–2017). The results suggest that flexible price levels cannot be taken for granted, and a link to competitiveness is not self-evident, either. Other channels of adjustment may prove to be more important, but scaling them up will ultimately require a sound consensus on the future architecture of the euro. [ABSTRACT FROM AUTHOR]

The current economic crisis has witnessed a strong deceleration in the growth of international trade. This has been even greater in the cases of the European Unionand the eurozone, where the rates of export growth have even reached negative figures. In this paper, the authors examine to which extent exchange rate volatility might account for the drop in the rate of growth of exports in the eurozone since the start of the crisis. To that end, they estimate export functions, augmented to include several measures of exchange rate volatility, for the four largest economies of the eurozone, i.e., France, Germany, Italy and Spain, for the period 1994:1–2014:4. In the empirical application, the authors make use of two alternative measures for exchange rate volatility, i.e., (i) the Standard deviation and (ii) the conditional variance from the GARCH methodology, of the change in the logarithm of the exchange rate, for both nominal and real exchange rates, and in the latter case computed using as deflators both Export prices and unit labour costs. The empirical results show no clear-cut evidence on the impact of exchange rate volatility on the exports of the countries analysed, suggesting that financial markets were developed enough so that exchange rate volatility does not hinder the evolution of exports.

This paper presents a new rationalization for bailouts of sovereign debt in monetary unions, such as those observed during the recent Euro crisis. It introduces a model where member countries of the monetary union are ex-ante identical, and each derives utility from consumption and disutility from the union-wide inflation rate. The union's central bank is utilitarian and lacks commitment. Countries borrow or save in a market for nominal sovereign debt in response to idiosyncratic income shocks, with countries that receive positive income shocks saving and countries that receive negative income shocks borrowing. Ex post, the monetary union's central bank will attempt to devalue sovereign debt through surprise inflation, as this will redistribute income from rich creditor countries to poor debtor countries. Creditor countries choose to bailout debtor countries because bailouts will weaken the redistributive motives of the central bank and forestall surprise inflation. As bailouts in this environment constitute a payment from lucky creditor countries to unlucky debtor countries, they mimic a risk-sharing arrangement that insures against income shocks. The payments made by creditor countries are incentive-compatible due to the shared currency and inflation rate in the monetary union. This ability of countries to provide each other with incentive-compatible insurance constitutes a novel theory of optimal currency areas. This insurance benefit of the monetary union is largest for countries with negatively correlated income shocks, in contrast to the classic Mundell-Friedman optimal currency area criterion. [ABSTRACT FROM AUTHOR]

In response to the euro area crisis, policymakers took a gradual, incremental approach to official lending, at first relying on the blueprint followed by the International Monetary Fund, then developing their own crisis resolution framework. We describe this process of institutional development, marked by a substantial divergence in the terms of official loans offered to. We use a unique dataset of the characteristics of the various official loans to provide key stylised facts, and use regression and event analysis techniques to study the effect of different lending terms on market borrowing costs and fiscal performance. Euro area loans, when in longer maturities and lower rates, go hand in hand with improved market access. Instead, the terms of IMF loans appear to have no significant effect on market access, but primary balances are larger when IMF maturities are longer. We discuss arguments for refocusing debt sustainability analysis and embed debt management techniques in programme design, while considering the trade-off between adjustment incentives and official lending. [ABSTRACT FROM AUTHOR]

Twenty years after the introduction of the euro, some European countries are still not willing to join the monetary union. Sweden, Czechia, Hungary, and Poland, although obliged to introduce the euro, decided to postpone this process indefinitely. There are various economic, political, legal, sociological, and even emotional factors underlying such a decision. In this paper, we focus on the key economic argument against euro adoption in these countries—the cost of the loss of monetary policy independence. Our results indicate that there already is a high correlation and synchronicity in key interest rates and business cycles between the euro area and non-euro area European countries. Most importantly, our analysis also suggests that business cycles in both groups of countries are predominately driven by the same (common) shocks. Following the postulates of the OCA theory, we therefore provide evidence supporting the view that the common monetary policy in these countries would, most likely, be an adequate substitute for national countercyclical policies. [ABSTRACT FROM AUTHOR]