This paper explores inflation determinants within the EU and implications for new members'' euro adoption plans. Factor analysis partitions observed inflation in EU25 countries into common-origin and country-specific (idiosyncratic) components. Cross-country differences in common-origin...

In this paper three possible reasons are examined for a sluggish inflation response to a hard currency peg. Models of overlapping wage contracts are analyzed and shown to generate little inertia. This contrasts with the effects of government credibility and the speed of private sector learning,...

This paper explains why sovereign issuers of reserve currencies do not use unexpected inflation to repudiate their foreign liabilities. Monetary restraint is exercised because of the fear that reserve users will switch to other currencies if an attempt is made to raise “excessive” revenue....

We present a model of a “soft” exchange rate target zone and interpret it as a stylized description of the post-August 1993 ERM. Our central bank targets a moving average of the current and past exchange rates, rather than the exchange rate’s current level, thus allowing the rate to move...

A simple two-country stochastic model is used to analyze monetary policy interaction in a system of exchange rate bands such as the EMS, in the context of internationally-integrated financial markets. We consider the widely-acknowledged asymmetry of the system, as it pertains to member...

A common rationale for EMS membership is that it enhances the credibility of a central bank’s commitment to stable monetary growth. In this paper we consider this idea in the light of two features of the system, namely, the existence of exchange rate bands and the prevalence of capital...

The synchronized disinflation across Europe since end-2011 raises the question of whether non-euro area EU countries are affected by the undershooting of the euro area inflation target. To shed light on this issue, we estimate an open-economy, New Keynsian Phillips curve, in which we control for...

This paper investigates the issue of monetary interdependence among members of the European Monetary System over the period 1979–91 and the leadership role attributed to the German central bank in the process of monetary integration, and looks for possible changes in central banks’...