This paper looks at whether the aggregate ERM money supply has been a useful predictor of short-term changes in inflation and growth, and long-term trends in price levels among the core ERM countries. The evidence suggests that over the period since 1987, when there have been no realignments,...

This paper examines the issue of whether countries can improve their welfare by coordinating macroeconomic policies. The main purpose is to compute the gains from international monetary cooperation as the difference between the steady state consumption levels associated with the Nash and the...

This paper is concerned with the design of institutional arrangements for low inflation in small open economies. In the real world of information asymmetries, uncertain expectations and changeable preferences, it is not enough to create an autonomous and publicly accountable central bank. In...

We study empirically daily French and German interest rate changes since the Basle-Nyborg agreement of September 1987. In particular, we ask whether the shock associated with German unification altered the degree of leadership of German monetary policy in the ERM. We conclude that Germany’s...

This paper proposes a quantitative assessment of the welfare effects arising from the Common Monetary Area (CMA) and an array of broader grouping among Southern African Development Community (SADC) countries. Model simulations suggest that (i) participating in the CMA benefits all members; (ii)...

Currency option implied volatility predicts more efficiently exchange rate volatility for the Polish zloty relative to the Czech koruna, reflecting differences in the frequency of central bank intervention in the foreign exchange market. A GARCH model shows a positive impact of the introduction...

We show the importance of a dynamic aggregation bias in accounting for the PPP puzzle. We prove that established time-series and panel methods substantially exaggerate the persistence of real exchange rates because of heterogeneity in the dynamics of disaggregated relative prices. When...

Standard theory shows that sterilized foreign exchange interventions do not affect equilibrium prices and quantities, and that domestic and foreign currency denominated bonds are perfect substitutes. This paper shows that when fiscal policy is not sufficiently flexible in response to spending...

This paper reviews the experiences of a number of European countries in coping with capital inflows. It describes the nature of the inflows, their implications for macroeconomic and financial stability, and the policy responses used to cope with them. The experiences suggest that as countries...

Fixed exchange rate regimes have come into disrepute, as their defense has become all but impossible. Yet, while a determined attack on a currency cannot be prevented or, ultimately, withstood, policies can reduce the vulnerability of a country to such attacks. The paper develops an analytical...