Exchange Rate Regimes, Inflation and Credibility: Evidence from Greece

We investigate how exchange rate regimes affect the anti-inflationary credibility of monetary policy in Greece. The evidence suggests a positive impact of a fixed exchange rate regime to anti- inflationary credibility.

(with Philippopoulos A. and V. Vassilatos), in Korres, G.M. and Bitros, G.C. (eds.) Economic integration: Limits and prospects. Palgrave, Houndmills (2002).

This book is intended to provide a basic understanding of current issues and problems of economic integration. Identifying economic integration as one of the main features of modern international economics, the authors examine many aspects and consequences of economic integration which remain obscure and unexplored. After addressing general issues regarding with economic integration, the authors include empirical and theoretical analyses of the monetary union, social policy reform, social union, a public finance, and technological policies.

The Euro, the Dollar and the International Monetary System

In this paper we analyze the changes in the fundamentals of the international monetary system following the introduction of the euro, as well as the likely transition scenario to the new world monetary equilibrium. We suggest that the introduction of the euro will bring about potentially important changes in the international monetary scene, as the euro will substitute to a large extent for the dollar as an international means of payments, unit of account and store of value. Such changes in the fundamentals will bring about an increased demand for euros shortly after the introduction of the new currency in international markets.

The first manifestation of the increased demand for euros will be an appreciation of the new currency against the US dollar and the yen. If the euro does challenge the dollar’s hegemony, this is likely to be a cause of instability in the international monetary system, which appropriate policy coordination could potentially mitigate.


in Paul R. Masson, Thomas H. Krueger and Bart G. Turtelboom (eds), EMU and the International Monetary System, Washington D.C., International Monetary Fund (with Richard Portes).

The ECU, the International Monetary System and the Management of Exchange Rates

This paper examines the prospective implications of full Economic and Monetary Union (EMU) in Europe for the international monetary system. It makes a giant leap forward in trying to compare the status quo, in which nine of the twelve EC currencies participate in the Exchange Rate Mechanism (ERM) of the European Monetary System (EMS) with full monetary union in which all currencies will have been replaced by a single currency. It concentrates of two main issues: The prospective role of the ECU as an international vehicle and reserve currency, and the implications for the dollar. Second, it examines the prospective changes that EMU will imply for the international coordination of monetary and fiscal policies between the USA, the EC and Japan and the exchange rate regime between the dollar, the ECU and the yen.

in Bekemans Leonce and Tsoukalis Loukas (eds), Europe and Global Economic Interdependence, Bruges, European Interuniversity Press.

Monetary Accommodation, Exchange Rate Regimes and Inflation Persistence

Section I presents a model of the inflationary process based on staggered contracts. This suggests that if monetary and exchange rate policy accommodates price shocks to maintain the level of real aggregate demand and the level of international competitiveness, then it will affect the expectations of wage and price setters, and will result in a higher persistence of inflation. Section I1 presents evidence that in periods of fiduciary standards and managed exchange rates there has indeed much higher persistence of global inflation and inflation differentials than in the period of the classical gold-standard and Bretton Woods. Monetary accommodation of average price shocks at the global level has also been much higher outside the latter two regimes, and exchange rate accommodation of relative price shocks has been very high in regimes of managed exchange rates. The final section summarises the conclusions and briefly discusses the implications of the findings for international monetary and exchange rate regimes.

The Economic Journal

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Fiscal Policies, Devaluations and Exchange Rate Regimes: The Stabilization Programs of Ireland and Greece

This paper contrasts the stabilization programs of Ireland and Greece in the 1980s and draws conclusions for the design of such programs in small open economies. Programs relying on government revenue increases are less likely to succeed than those based on expenditure reductions. The paper also emphasizes the contribution which a devaluation can make in the initial stages of such a program, but argues that this can only be effective in the context of a regime with established anti-inflationary credibility.

Economic and Social Review, 23, pp. 225-246 (April 1992).

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European Monetary Union and International Currencies in a Tripolar World

This paper examines the prospective implications of European Monetary Union for the international monetary system. It concentrates on the prospective role of the european single currency as an international vehicle and reserve currency, and on implications of the single currency for the coordination of monetary and fiscal policies in a tripolar world consisting of the US, Europe and Japan. The paper draws lessons from the experience of sterling and assesses the costs and benefits of EMU in a tripolar world.

in Canzoneri M., V. Grilli and P.R. Masson (eds), Establishing a Central Bank: Issues in Europe and Lessons from the US, Cambridge, Cambridge University Press. (with Richard Portes).

The Phillips Curve, the Persistence of Inflation and the Lucas Critique: Evidence from Exchange Rate Regimes

We present evidence from the United States and the United Kingdom that the persistence of price inflation is significantly higher under managed-exchange-rate regimes than under gold-based, fixed-exchange-rate regimes. These differences are also reflected in expectations-augmented Phillips curves. We use a two-country macro model, with forward-looking price setters, to demonstrate that higher monetary accommodation of inflation and exchange-rate accommodation of inflation differentials increase inflation persistence. The evidence does not contradict this hypothesis. It supports the hypothesis of forward-looking price setters and highlights the empirical signijicance of the Lucas critique. (JEL E31, E42, F33)

American Economic Review (with Ron Smith)

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