EMU, Financial Markets and the World Economy by Thomas Moser, Bernd Schips

By Thomas Moser, Bernd Schips

This ebook relies at the convention "EMU and the surface World", held on the Swiss Federal Institute of know-how (ETH), December eleven, 1998. The convention was once equipped through the Swiss Institute for company Cycle learn (KOF), that's supported together through the ETH and the Swiss Society for company Cycle examine (SGK), a company comprising representatives from deepest undefined, the Swiss nationwide financial institution and public gurus. at the eve of the ultimate level of eu fiscal and Mone­ tary Union (EMU), Zurich a very acceptable position for this kind of convention. at the one hand, given its situation and financial and fiscal hyperlinks with the euro zone, Switzerland is likely one of the "outside coun­ attempts" most influenced via EMU. nevertheless, it used to be nowhere else than in Zurich the place the imaginative and prescient of "a usa of Europe" used to be expressed for the 1st time through Winston Churchill in his speech on September 19, 1946. for lots of EMU is a step in that course, even if welcome or now not. many of the papers showing during this quantity have been offered on the con­ ference and feature been revised and up-to-date. 3 contributions, bankruptcy eleven- thirteen, have been commissioned in particular for this ebook. along with the authors of the chapters, designated thank you are because of Guido Boller, Robert McCauley, Umberto Schwarz, and Charles Wyplosz.

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Both models' realism must be compared. Iler the country; the difference comes from the impact on inflation: in our model, devaluation impinges more on prices in the smaller country whereas inflation impacts are the same in Martin's, whatever the degree of openness. We do think that this peculiarity makes Martin's model less realistic than ours: PPP does not hold empirically since a devaluating country does not face an inflation whose magnitude is equivalent to that of the exchange rate variation.

Since the paper uses a fairly simple approach to project future demand for international reserves, international bonds, and international bank deposits, and given the arguments of the Lucas critique, the results should be interpreted with caution and should be regarded as orders of magnitude for the long-run changes. However, they seem to be reasonable considering that little can be inferred from the early EMU experience in 1999 about the long- 28 Chapter 2 run policies of the ECB and the behavior of other central banks and private investors.

Iler the country; the difference comes from the impact on inflation: in our model, devaluation impinges more on prices in the smaller country whereas inflation impacts are the same in Martin's, whatever the degree of openness. We do think that this peculiarity makes Martin's model less realistic than ours: PPP does not hold empirically since a devaluating country does not face an inflation whose magnitude is equivalent to that of the exchange rate variation. Furthermore, devaluation is more inflationary in a small open economy than in a larger and more closed country.

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