1,720,983 research outputs found
Inflation Aversion and Exit Probabilities in the Monetary Unions
No full textThe paper considers a monetary union composed of two representative countries characterized by different inflation aversions. The model derives Nash equilibria after a country-specific shock in which the countries have a costly option to abandon the common currency. The main results are that the higher the inflation aversion of the country affected by the shock, the lower its exit probability. The higher the inflation aversion in both countries, the lower the probability that the country not directly hit also abandons the monetary union (contagion)
Testing Fiscal Solvency in Macroeconomics
No full textThis paper presents a literature review regarding the assessment of government solvency and fiscal policy. While indicators for fiscal sustainability are forward looking and based on expected future fiscal policies, tests are backward looking and based on information about the past values of fiscal variables. In this paper, we describe the main tests for fiscal solvency
Risks of deflation in the EMU: Why is this time so deceitful?
No full textThe deep recessions characterizing the European Economic and Monetary Union (EMU) between the second semester of 2008 and the end of 2009, and from the last quarter of 2011 to the first quarter of 2013, were particularly severe for the euro area peripheral member states. These countries have beensubjected to a longer recessionary phase compared to the EMU‟s average. A large part of them has experienced a compression of the monetary wages andprice levels during both the two crisis periods in order to curb their macroeconomic imbalances. Italy has flown into a triple dip since the first half of 2014.Given this picture, it is not surprising that three episodes of decreasing monetary prices for the euro area as a whole can be identified. As shown later, theseepisodes coincide – respectively – with the peak of the international financial crisis during the last two quarters of 2008, the possible collapse of the Americanand European economic systems in the first term of 2009, and the main re-adjustment of macroeconomic imbalances implemented by EMU‟s countries in thelast year (2014)
The Sustainability of Monetary Unions. Can the Euro Survive?
No full textThis paper aims to propose a new measure of exchange market pressure for countries operating in hard peg regimes, such as currency unions, currency boards or full dollarization. We use a general model of currency crisis to derive a sustainability index based upon the relationship between the shadow exchange rate and the output gap required to maintain the currency peg. We apply the new index to European Union countries in order to assess the sustainability of the Euro.[...
Assessing sovereign debt sustainability using a wealth-based fiscal indicator
No full textWorking in the context of an endogenous growth model with the public sector, we show that forward-looking agents' optimizing behavior typically gives rise to a wealth-based, rather than to an output-based, sustainability index of government policy. New insights emerge from calibrating the index to European countries along with the U.S. and Japan as reference countries
“Whatever it takes”: A plea for active monetary policies
No full textOur paper aims to analyze Mario Draghi’s famous statement, the “whatever it takes”, as a mechanism that preserves the common good of financial stability and facilitates debt control in the peripheral countries. Although we consider decentralized fiscal policies, a more conservative policy stance is achieved under “whatever it takes” than under an inflation targeting regime
The fallacy of fiscal discipline
Full text linkFiscal discipline is commonly evaluated on the basis of the debt–gross domestic product ratio, which exhibits a stock variable measured relative to a flow variable. This way of monitoring debt solvency is arguably not consistent with transversality conditions obtained from optimizing macroeconomic frameworks. In this paper, we consider a wealth-based sustainability index of government debt policy derived from a baseline endogenous growth model. We calculate the index from 1999 onward for countries in which the after-growth real interest rate is positive, consistently with the theoretical setup. Results are radically different from common wisdom. We show that the fiscal position is sustainable for both Germany and Italy, and strongly unsustainable for both Japan and France. Policy implications of our findings are discussed
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