OPTIMUM CURRENCY AREAS AND EUROPEAN MONETARY UNIFICATION

This paper examines the European experience from optimum currency areas perspective with a focus on the correlation of underlying aggregate shocks within a structural vector autoregression (VAR) framework. Appropriately identifying supply shocks, real fiscal shocks, and nominal shocks, the paper investigates the correlations of shocks and tries to evaluate the likely adjustment and other problems that may take place with the introduction of a single currency in Europe. Using data for 20 European market economies, the paper compares original members of the European Community to new members and non-members. Shocks are mostly country-specific, particularly for newer members and non-members, suggesting the importance of alternative adjustment mechanisms other than national monetary policies after the introduction of a single currency.     

VEHICLE CURRENCY*

Historically, the world economy has been dominated by a single currency accepted in the exchange of goods and assets among countries. In recent decades, the U.S. dollar has played this role. The dollar acts as a “vehicle currency” in the sense that agents in nondollar economies will generally engage in currency trade indirectly using the U.S. dollar instead of using direct bilateral trade among their own currencies. A vehicle currency is desirable when there are transactions costs of exchange. This article constructs a dynamic general equilibrium model of a vehicle currency. We explore the nature of the efficiency gains arising from a vehicle currency and show how it depends on the total number of currencies in existence, the size of the vehicle currency economy, and the monetary policy followed by the vehicle currency’s government. We find that there can be significant welfare gains to a vehicle currency in a system of many independent currencies. But these gains are asymmetrically weighted toward the residents of the vehicle currency country. The survival of a vehicle currency places natural limits on the monetary policy of the vehicle currency country.     

RESIDUAL WAGE DISPARITY AND COORDINATION UNEMPLOYMENT*

How much of residual wage dispersion can be explained by an absence of coordination among firms? To answer, we construct a dynamic directed search model with identical workers where firms can create high‐ or low‐productivity jobs and are uncoordinated in their offers to workers, calibrated to the U.S. economy. Workers can exploit ex post opportunities once approached by firms, and can conduct on‐the‐job search. The stationary equilibrium wage distribution is hump‐shaped, skewed significantly to the right, and, with baseline parameters, generates residual dispersion statistics 75–90% of those found empirically. However, the model underestimates the average duration of unemployment.     

发达地区与不发达地区可持续发展的协调机制

区域经济发展的不平衡是一个国家经济发展过程中的必然表现。协调地区经济既要解决公平问题,又不能牺牲效率。按此要求,协调地区经济有两个机制:市场协调和政府协调。     

MONETARY POLICY REGIME SWITCHES AND MACROECONOMIC DYNAMICS*

This article considers the determinacy and distributional consequences of regime switching in monetary policy. Although switching in the inflation target does not affect determinacy, switches in the inflation response can cause indeterminacy. Satisfying the Taylor principle period by period is neither necessary nor sufficient for determinacy when inflation responses switch; indeterminacy can arise if monetary policy responds too aggressively to inflation in the active regime. Inflation target switches primarily impact the level of inflation, whereas inflation response switches primarily impact the volatility. Expecting an inflation target switch has minor effects on volatility, whereas expecting an inflation response switch raises volatility more substantially.     

THE CARE AND HANDLING OF MONETARY AUTHORITIES*

Sometimes a group of people want to hire some agent (a monetary authority, for instance) to force them to cooperate with one another. This can cause problems, not only of the standard principal-agent type, but also of inconsistency, which appears here as renegotiation. The group faces a conflict between controlling the agent – the agency problem – and controlling themselves – the inconsistency problem. Terms of office are a good way to resolve this problem, and in fact, for people patient enough, the renegotiation problem disappears. This model provides insights into why the public dislikes inflation, why the market for presidents does not clear in Walrasian fashion, and why the controversy about “rules versus discretion” provides no policy guidance.     

LABOUR MOBILITY AND TRANS‐TASMAN CURRENCY UNION*

The prospect of a common currency for Australia and New Zealand has been canvassed by senior poli‐ticians and bureaucrats, and has been the subject of academic debate. According to Mundell (1961 ), a high degree of internal labour mobility is a desirable feature of currency unions. This study looks at the extent to which long‐term migration between Australia and New Zealand responds to output shocks. Estimated VAR models and panel Granger‐causality tests demonstrate that shocks to relative per capita output have a significant and symmetrical impact on migration flows between Australia and New Zealand, and most of the impact is felt after about one year. Separating the shocks to Australia and New Zealand shows that ‘pull’ effects are more important than ‘push’ effects. Additionally, the trajectory of the Australian economy proves particularly influential for the choice of New Zealand emigrants. Although permanent migration responds intuitively to the state of the economy in Australia and New Zealand, the level of these migration flows is low in comparison to Australian inter‐state migration; yet it is high in relation to any third country.     

SEARCH,LIMITED PARTICIPATION,AND MONETARY POLICY*

A model is developed that employs recent developments in the literature on search models of money to capture the distributional effects of monetary policy in a tractable way. Deterministic and stochastic versions of the model are studied. Money is not neutral, and these nonneutralities persist, whether or not the change in the money supply is anticipated or unanticipated. At the optimum, monetary policy is geared to correcting distortions in the search sector of the economy, while correcting for the persistent effects of past monetary policy actions.     

EXPECTATIONS AND CONTAGION IN SELF‐FULFILLING CURRENCY ATTACKS*

Self‐fulfilling expectations are commonly believed to play an important role in the transmission of currency crises across countries. Formal models of contagion based on multiple equilibria, however, have been criticized for failing to explain basic patterns observed in the data; these criticisms have been taken as evidence against the self‐fulfilling view. This article argues that the importance of self‐fulfilling beliefs is not so easily dismissed. A slightly richer model, based on the incomplete‐information framework of Morris and Shin (American Economic Review 88 (1998), 587–97) , can generate contagion due to self‐fulfilling beliefs while placing restrictions on observable variables that are broadly consistent with the empirical evidence.     

MONETARY ANTICIPATONS AND THE DEMAND FOR MONEY SOME UK EVIDENCE*

The Carr-Darby ‘shock-absorber’ hypothesis, that unanticipated changes in the money supply influence the demand for real money balances but anticipated changes do not, is tested on UK data for narrow money, M1. For comparison with earlier studies on US data we take the (real first order) partial adjustment model as one example of a ‘conventional’ demand for money function. However the Carr-Darby hypothesis is also tested taking a more general autoregressive distributed lag model as the ‘conventional’ demand function. For both ‘conventional’ demand for money functions we find that the shock-absorber hypothesis is not supported for M1 using UK data.