We study the gains from increased wage flexibility and their dependence on exchange rate policy, using a small open economy model with staggered price and wage setting. Two results stand out: (i) the impact of wage adjustments on employment is smaller the more the central bank seeks to stabilize...

There has been a resurgence of interest in currency boards as a possible approach to achieving a stable currency in newly established or hyperinflationary financial systems. This paper draws attention to one of the more successful currency board experiences, namely that of Ireland. We review the...

This review article discusses the recent document titled `One Market, One Money' in which the European Commission develops its case for European monetary union. After examining the monetary issues, the article focuses on the reasons for the Commission's very worried attitude toward fiscal policy...

What can be learnt from revisiting the Optimal Currency Areas (OCA) theory 50 years from its birth, in light of recent advances in open economy macro and monetary theory? This paper presents a stylized micro-founded model of the costs of adopting a common currency, relative to an ideal benchmark...

The paper reviews the arguments for and against monetary union among the six members of the Gulf Cooperation Council - the United Arab Emirates, the State of Bahrain, the Kingdom of Saudi Arabia, the Sultanate of Oman, the State of Qatar and the State of Kuwait. Both technical economic arguments...

This paper offers empirical evidence that real exchange rate volatility can have a significant impact on long-term rate of productivity growth, but the effect depends critically on a country's level of financial development. For countries with relatively low levels of financial development,...

This Paper considers how an international lender of last resort can prevent self-fulfilling banking and currency crises in emerging economies. We compare two different arrangements: one in which the international lender of last resort injects international liquidity into financial markets, and...

This study intends to analyse the credibility of the Hungarian exchange rate regime preceding and during the Russian stock market crisis and devaluation (in 1998). Throughout the Paper the comparison with the similar regime in Poland is stressed. The basic tool applied is a measure of market...

This Paper analyses the welfare effects of monetary policy rules in a quantitative business cycle model of a two-country world. The model features staggered price setting, and shocks to productivity and to the uncovered interest rate parity (UIP) condition. UIP shocks have a sizable negative...

This paper seeks to integrate more closely the theory of optimum currency areas with the theory of international trade. The currency area is considered as a continuous variable ranging from zero to one: zero if there is no enlargement, and some positive value otherwise, corresponding exactly to...