The uncovered interest rate parity condition lies at the heart of the "impossible trinity", stating that the three objectives of fixed exchange rates, free capital flows, and independent monetary policy cannot be pursued simultaneously. We argue that although monetary unification does indeed...

Choosing an exchange-rate regime is largely a matter of choosing the variables that will bear the brunt of adjustment to shocks and disturbances. Floating rates, supported by inflation-targeting regimes of varying degrees of transparency, have dominated currency arrangements in North America,...

Choosing an exchange-rate regime is largely a matter of choosing the variables that will bear the brunt of adjustment to shocks and disturbances. Floating rates, supported by inflation-targeting regimes of varying degrees of transparency, have dominated currency arrangements in North America,...

On February 24-25, 2006 an international workshop on “Regional and International Currency Arrangements” was held in Vienna. It was co-sponsored by the Oesterreichische Nationalbank and the Bank of Greece, and jointly organized by Eduard Hochreiter and George Tavlas. Academic economists and...

We examine the implications of monetary union for macroeconomic stabilisation in catching up participating countries. We allow member states' supply conditions to differ inside the union, especially with regard to sectoral characteristics. Sectoral productivity shocks on balance hamper the...

The impact of EMU on the transatlantic exchange rate stability raises the more general question of whether the exchange rate is a useful adjustment instrument or source of instability. We estimate a simple, three-country model for the United States, Germany and France, over the 1972-1995 period....

Empirical confirmation that the effect of macroeconomic fundamentals on exchange rates is economically important has been scarce. This paper employs a general GARCH specification with asymmetric responses to investigate the effect of 35 U.S. and German macroeconomic news announcements on the...

The optimal escape from a liquidity trap involves generating private-sector expectations of a higher future price level and higher future inflation. This lowers the real interest rate and reduces the recession during the liquidity trap. The problem, emphasized by Krugman, is that central-bank...

How are wages set in an open economy? What role is played by demand pressure, international competition, and structural factors in the labour market? How important is nominal wage rigidity and exchange rate policy for the evolution of real wages and competitiveness? To answer these questions, we...

Chile offers an example of a country that has overcome the fear of floating by reducing balance sheet mismatches, enhancing financial market development, as well as improving monetary, fiscal, and political institutions, and strengthening policy credibility. Under the floating regime, Chile's...