Shall the New EU Members Introduce the Euro? Some Macroeconomic Policy Effects

After the EU enlargement in 2004, there is a clear commitment of the EU and the new member states to aim at an enlargement of the euro zone within the European Economic and Monetary Union (EMU) as well. This might have significant effects on the old EMU, the new members, and even on the global economy. The present paper analyzes some macroeconomic effects and particularly the impact on the effects of stabilization policies when switching to an enlarged euro zone under different assumptions about fiscal and monetary policy regimes in Europe and under alternative types of economic shocks. Also, the implications for the US of different European monetary regimes are evaluated. The results suggest that economic benefits for all countries are rather small. For the Central and Eastern European countries (CEECs), even disadvantages may dominate.     

Economische orde,economische politiek en sociale politiek

Naar aanleiding van een bundel opstellen van dr J. Zijlstra, Economische Orde en Economische Politiek, H. E. Stenfert Kroese N.V., Leiden 1956, 143 blz. en een bundel opstellen van dr G. M. J. Veldkamp, Economische Orde en Sociale Politiek, H. E. Stenfert Kroese N.V., Leiden 1957, 156 blz.     

Fiscal Discipline and the Question of Convergence of National Interest Rates in the European Union

In this paper, interest-rate convergence in Europe is related to the behavior of integrated federal political systems. Our main results are: Before the final fixing of exchange rates, national interest rates will converge toward the German bond yield in countries eligible to become EMU members in part because no-bailout clauses are not credible in the starting period of EMU. Should such clauses become more credible after 2002 because the EU government and its redistributive mechanisms remain weak, the market-discipline hypothesis has a greater chance to apply. But it may still prove unequal to the task of discouraging excessive fiscal deficits on its own.     

Toegepaste welvaartseconomie en de marginale kostenregel

Enkele opmerkingen naar aanleiding van F. Hartog, Toegepaste welvaartseconomie, Stenfert Kroese N.V., Leiden 1964 216 blz     

Expenditure and deficit policy: An analysis of the William E. Simon's rules

In a speech before the Mont Pelerin Society, William E. Simon recommended that the U.S. government adopt five rules to achieve stability and economic growth. Two of these rules deal with the budget posture. The rules were based upon Simon's belief that excessive government spending and recurring federal budget deficits significantly contributed to the economic instabilities of the 1970s and 1980s, namely, high inflation, high unemployment, and decreasing rates of production and private capital accumulation. This paper seeks to explore the extent to which fiscal action in these two decades had departed from Simon's recommendations and presents evidence on the link between federal budget deficits and economic growth.The proposals to limit spending and balance the budget are sometimes discussed as alternatives, but in my mind, they are not.William E. Simon. Speech before the Mont Pelerin Society. Hoover Institution, 1980, p. 30.     

Fiscal Rules in a Monetary Union: A Short-Run Analysis

This article challenges the conventional result according to which an instrument-independent central bank able to strictly commit to price stability makes fiscal constraints unnecessary. We present a model of a monetary union with heterogeneous members where the inefficient policy mix resulting from the lack of coordination between the common monetary policy and national fiscal policies incites the governments to appoint excessively liberal delegates to the central bank's board. We characterize the fiscal restraints necessary to restore the central bank's ability to deliver the most desirable degree of price stability. It appears that even country-specific and state-contingent restraints may be counterproductive for some member states.     

Aantekeningen bij de nadere beschouwingen over het begrip monetair evenwicht van Professor Kreukniet

P. B. Kreukniet, Monetair evenwicht revisited,De Economist, CXII (1964), pp. 386–401.     

Endogenous Symmetry of Shocks in a Monetary Union

The monetary union issue, when assessed with the traditional inferences for optimal currency areas, misses an important dimension. Increased specialisation induced by reduced transaction costs, suggested by Krugman's lessons of Massachusetts, is only a part of the story. Even if agglomeration and inter-industry trade may occur as a result of reduced transaction costs, this tendency may be counteracted by the elimination of uncertainty associated with bilateral exchange rate variability within the monetary union.Thus, in contradiction to what is generally assumed on the basis of the reduction in transaction costs only, the European Monetary Union (EMU) is likely to foster intra-industry trade in Europe, leading to more symmetric shocks between member states. The monetary union will endogenously create the conditions of its success. Empirical evidence is provided for EU countries' bilateral trade over the period 1980–1994, using disaggregated trade data.     

German dominance in the European Monetary System: Evidence from money supply growth rates

This paper presents further evidence on ostensible German dominance in the European Monetary System (EMS). A dynamic system of equations is built explaining money growth rates as a function of the EMS countries' money growth rates, the world money growth rate, exchange rate objectives, inflation rates, and real income growth rates. A test of German dominance based upon money growth rates is a test of the hypothesis that the EMS has increased the comovements of money demand between countries in the system. It is found that German independence holds, but other central banks can also be important players in the system in that they can conduct independent monetary policies. Monetary policies in the EMS are best characterized as interactive. Therefore, the strict German dominance hypothesis is rejected. It follows that the EMS has not increased significantly the link between money demand functions in the EMS countries in the hierarchical structure as claimed by the dominance argument.     

Fiscal and monetary policy on the way to EMU

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, the fiscal and the inflation criteria lack consistency. A return to fixed exchange rates in Europe worsens the results of fiscal retrenchment in Europe. All of this implies that a hard interpretation of the criteria is neither a desirable nor a credible strategy for EMU.CEPR     

De verantwoordelijkheid van de Staat als leningdebiteur met name in de onderontwikkelde gebieden

Het bovenstaande geeft de inhoud weer van een praeadvies uitgebracht voor het in september 1956 te Rome gehouden congres van het Institut International de Finances Publiques, gewijd aan Les effects économiques des dépenses publiques.     

Bijdrage tot de theorie van de commerciele prijspolitiek

Tweede lezing voor de Economische Faculteitsvereniging te Groningen, gehouden op 21 februari 1958. Zie voor de eerste lezing, Variaties op een thema van Böhm-Bawerk, De Economist, April 1957, blz. 292 e.v.     

Forward exchange,short term capital flows and monetary policy

Summary This paper re-examines the relationships between short term capital flows and monetary policy, in the light of a new theoretical approach of the forward exchange market. They contend that the traditional forward exchange market theory is a misleading one as it fails to give all the importance it deserves to the distinction between covered and uncovered exchange transactions and to the actual role of the arbitrageurs. As a consequence of this analysis, they demonstrate that the problem of monetary management in an open economy must be dealt with in a way different from what has been usual, and they conclude that monetary policy, central banks' intervention on the foreign exchange market and direct controls on capital movements can still have some efficiency in the struggle against inflation, either of the domestic or the imported type.     

ECB Foreign Exchange Intervention and the EURO: Institutional Framework,News, and Intervention

Using a unique intervention news data set, this paper investigates the impact of ECB intervention and intervention-related news (newswire reports) on the Euro exchange rate. A time-series study of news generated by ECB officials and market participants regarding intervention and the value of the Euro as well as an event study of firm reports of ECB intervention is conducted. Both studies find significant short-run effects on the Euro value, while only negative statements (official statements denying past intervention or ruling out future intervention) appear to have persistent effects.     

Fiscal Pacts

Fiscal pacts have recently played important roles in stabilization policies, particularly in Latin America. The ability of pacts to achieve austerity is examined in a game of competition among pressure groups for fiscal influence. Coalitions can freely communicate about what strategies to play and make contingent threats to the strategies of others. The credibility of fiscal pacts (strong, coalition-proof and far-sighted strong equilibria) is shown to depend critically on how acquiescence to private sector pressure enters the government's payoff function. We interpret these results in the context of austerity successes and failures in Mexico, Brazil, and Argentina.     

“Set a Sufficiently Ambitious Budget Target and Let the Automatic Stabilizers Work”. Will it Really Work in the European Monetary Union?

We examine the popular recipe in the title by means of an AD-LM-AS two-country model of the EMU, controlling for asymmetry in demand and supply shocks and in the monetary-policy transmission mechanism. Unless structural symmetry holds and symmetric shock occurs, national automatic stabilizers, even though supplemented with the common monetary policy, cannot deliver optimal stabilization in each economy. Inflation and output gaps are not closed and may be divergent in sign. Considering that a federal system of inter-regional insurance is lacking, the recipe under examination is too optimistic, while serious threat to EMU cohesion may arise. The econometric estimates we present show that existing national fiscal systems work very poorly as for the minimization, after shocks, of the dispersion of national incomes around the EMU average.     

Het Liquid Iteiskarakter Van Spaartegoeden

Summary Before 1964, the Netherlands Bank did not count savings balances at money-creating banks and savings banks as secondary liquid assets or secondary liquidity (that is, near-money). Secondary liquid assets comprise claims on the public authorities and money-creating institutions, so far as they are held by other than money-creating institutions, which can be converted in large amounts into money at relatively short term without much expense or great loss on the transaction, or which can be used at their par value to make payments in satisfaction of current tax assessments.However, towards the end of the 1950's it became apparent from the rising value of the velocity of circulation of savings balances at financial institutions that these assets were acquiring increased significance for current payments. In 1964, this phenomenon induced the Netherlands Bank to count a certain part of the savings balances — indicated as liquid savings balances — as secondary liquidity, whereas the remaining part (true savings balances) was not. The Bank did so for better being able to impute the responsibility for monetary disturbances to the various sectors of the economy.Savings balances acquiring increased significance for current payments is a result of increased competition among financial institutions for the savings of the households sector. This increased competition is due to the fact that the households feel the need of more services rendered by the financial institutions as their income rise. Nowadays those financial institutions whose balance sheets do not comprise an item Current Accounts permit households to use their savings balances for making current payments. On the other hand, there is a tendency towards creating new types of accounts that serve as current accounts for the households in particular. If this tendency is followed up, the liquid assets character of savings balances will grow weaker.Rede, uitgesproken bij de aanvaarding van het ambt van gewoon hoogleraar in de staathuishoudkunde aan de Nederlandse Economische Hogeschool te Rotterdam op 28 september 1967.     

The economics of dying: A misapplication of tools

Conclusions Unlike McKenzie and Tullock, we do not know how personsshould treat their bodily organs or what is an ideal exit. That depends upon their utility goals, which are defined in output terms specific to the decision maker. We contend that the body is an input into the utility production process, and therefore, as with any input, it must be maintained and repaired at a level consistent with the output goals for maximization of utility. Thus, from this framework, it is quite consistent for a person to die with healthy organs without any thought of belief in reincarnation or the desire to bequeath one's bodily organs to others, or religious values. Self interest is all that must prevail.Also, the fact that there are interrelationships between the organs in the system, and at points these relationships take on fixed factor characteristics such that reduced levels of operation in one organ can create disorientation or coma or damage to other organs, means that the body cannot die as M-T suggest. Zero capacity for all organs at death is a technical impossibility as well as being inconsistent with the output goals of utility maximizers.     

Money creation and economic activity

Summary In the Netherlands not much attention is paid to money supply figures as an indicator of actual monetary conditions. This can be partly explained by the publication lag and the continuous revisions of seasonally adjusted data. However, the information that can be derived from money supply figures is limited because of temporary disturbances originating from the foreign exchange market. In this paper a correction method for these temporary disturbances is proposed. Money supply figures show a much closer link to real economic activity when corrected in this way.A different version of this essay with less emphasis on Holland but more information about other West-European countries has been published as chapter II Watching the money supply in: Eduard J. Bomhoff,Monetary Uncertainty, Amsterdam and New York, 1983. We gratefully acknowledge the able research assistance of Isolde B. Woittiez and Geert Rouwenhorst; Kempen and Co. kindly provided the two figures.     

Interpretation of error covariances with nonrandom data: An empirical illustration of returns to college education

Conclusion This paper reviews two models of selectivity and gives an interpretation of the covariance terms that are particular to self-selectivity models. While the second model examined in this paper has been discussed elsewhere, the estimates presented for the first model have not been discussed in previous papers. More importantly though, the paper proposes an hypothesis about the expected relationship between error covariances. According to this hypothesis, if all individuals who are faced with the choice between two regimes (1 and 2) choose the regime which yields a maximum value, then the expected relationship between covariances is ₁ < ₂ . If all individuals choose that regime which yields a minimum value, then the expected relationship between covariances is ₁ > ₂ . This relationship holds for a very general class of selectivity models, so long as individuals are choosing between regimes by comparing the expected value (to them) of each regime.This paper was written while I was working under the professional development program at CNA.