Recent proposals for enlarging the European Community to include the EFTA countries raise the question of whether the new members should participate in a European Monetary Union. In part, the issue hinges on the incidence of aggregate supply and demand disturbances. We use data on prices and...

Data on output and prices for 11 EC member nations are analyzed to extract information on underlying aggregate supply and demand disturbances using a VAR decomposition. The coherence of the underlying shocks across countries and the speed of adjustment to these shocks are then compared to the...

The paper discusses the policy problems of a project aimed at substituting several national currencies with one single currency. While these problems are of general interest, the analysis is motivated by the plan for Economic and Monetary Union among the members of the European Community. The...

This paper studies how the creation of a European Central Bank (ECB) will change the political economy of monetary policy in Europe. The twelve governors of the national Central Banks of the EEC have recently proposed a statute for the ECB which delineates its institutional structure. In this...

The main goal of this paper is to estimate to what extent the federal government of the United States insures member states against regional income shocks. We find that a one dollar reduction in a region's per capita personal income triggers a decrease in federal taxes of about 34 cents and an...

We update tests of the credibility of the EMS exchange rate target zones. Our main methodological innovation is to use a survey of exchange rate forecasts, as well as interest differentials, in measuring exchange rate expectations. We investigate the hypothesis -- suggested by the apparent...

The paper presents estimates of devaluation expectations for six EMS currencies relative to the Deutsche mark, for the period March 1979-May 1990. The estimation method is simple and operational, and consistently generates sensible results. The estimates are constructed by the adjusting interest...

An empirical model of time-varying realignment risk in an exchange rate target zone is developed. Expected rates of devaluation are estimated as the difference between interest race differentials and estimated expected rates of depreciation within the exchange rate band, using French...

When central banks are about to relinquish control over their exchange rate and enter into a currency union, the reptutational costs to devaluation are very low. As with any finite-horizon game, the endpoint affects the earlier expectations of private agents, here causing them to demand higher...

Empirical work on exchange-rate behavior under a target-zone regime has used data produced by the European Monetary System (ENS) and has found that the data contradict important predictions made by the standard target-zone model. We argue that the contradictions reflect a misinterpretation of...