Over the past three years, as the euro area has struggled with high levels of sovereign debt, it has been gradually developing into a debt union. However, this is not a sustainable arrangement. This article proposes two alternatives to a debt union — a fiscal union and a monetary union with...

We present the simulations of fiscal adjustment policies to the Maastricht criteria in the European economies based on a rational-expectations model of the G7 economies. We find that an effort to achieve the fiscal criteria inflicts pronounced recessions on the European economies. Furthermore,...

We address three related questions concerning financial liberalization in a small open economy. Does financial liberalization and the resulting capital inflow improve production efficiency in the domestic economy? Who benefits from financial liberalization in the long run and in the short run?...

We analyze the choice between fixed and flexible exchange rates in the context of an open economy version of a multimarkets equilibrium model. In contrast to previous analysis, we separate the information and the shock-absorbing aspects of the two regimes. Under a relative price risk criterion,...

The European Monetary Institute (EMI) will prepare a framework for European Monetary Union (EMU) monetary policy during the transition to the EMU. This involves a trade-off between deepening financial market integration and harmonizing central bank instruments, a choice between centralized and...