Can the ECB be Truly Independent? Should It Be?

Most of the literature on the independence of the Central Bank assumes only one policy instrument is available: monetary policy. If we introduce fiscal policy as well, when preferences may differ among policy-makers, the situation is radically different. In this case fiscal policy will substantially weaken the impact of the Central Bank's actions, and may annihilate them altogether. The Stability Pact may then be a liability, instead of an asset, because it renders both policies impotent (even if credible). We examine whether there is any incentive to retain monetary policy independence; and whether accountability can and should be used to ensure fiscal and monetary policies support each other, rather than undermine each other.     

Europeanization or globalization? Transnational wage bargaining and the distribution of activity in European labor markets

This paper investigates the impact of globalization on labor markets, in terms of wage inflation and the distribution of activity across regions. Specifically, we study the effects of aggregation in the labor markets on the distribution of employment and inflation pressures, where there are differences in market structures and transmission mechanisms underpinned by relatively immobile labor. To demonstrate these ideas, we take the European experience as a “laboratory” to show what can be expected from globalization in the labor markets in practice. Using models of wage leadership vs. locational competition, we examine the extent and strength of aggregation effects on labor market costs using a sample of data from 1983 to 2007 which covers the period of the creation of the Euro. We find that the aggregation effect has decreased significantly since the start of EMU, improving the trade-off between inflation and unemployment. At the same time, while Germany played an important role in the run-up to EMU in terms of wage leader, its role has now decreased and been replaced by globalization forces. This implies increased locational competition in terms of wage formation. We demonstrate this with the emerging role of the US as the benchmark for wage setting in Europe.     

What are the prerequisites for a euro area fiscal capacity?

ABSTRACT

This paper discusses a pathway towards achieving fiscal union in the euro area. It outlines three steps and their prerequisites. In the first step, Banking Union would be completed to increase the financial stability of the euro area. It would render the “no bailout” clause more credible and thereby allow to deal better with insolvent governments. In the second step, more centralised funds would be created in order to provide important public goods and in order to deal with large asymmetric shocks. The third step, which is currently unattainable, consists of a true federalisation of important government functions.     

EU Enlargement: Expanding the Union and Its Potential

Intereconomics - The new EU member candidates, as well as those who have had this status for a decade, present the Union with an opportunity to decide what kind of club it should be.     

How anchored are inflation expectations in EMU countries?

Anchored inflation expectations help stabilize inflation. Previous results indicate that monetary policy has been effective in breaking the link between actual and expected inflation at the euro area level. In this paper we examine whether this is also true at the national level. We define the ‘disconnect’ between inflation and inflation expectations and then proceed to examine the extent to which this disconnect exists for a number of euro area countries. Our findings suggest that for some countries, their own inflation experiences still affect national inflation expectations, and certainly more by comparison to how they affect the aggregate euro area level.