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).

On Public Debt Stabilizations in an Interdependent World

This paper considers alternative modes of stabilization of world-wide and relative levels of public debt. The analysis is in terms of a model of overlapping, infinitely lived households. Three methods are compared: tax finance, public- consumption finance and monetary finance. We show that a tax-financed world-wide public-debt stabilization results in the highest reduction in consumption and the capital stock; monetary finance has no real effects in the model examined, other than on the composition of public-sector liabilities between money and bonds. A tax-financed relative public-debt stabilization by one country is shown to be associated with a greater rise in external debt and fall in relative consumption than either of the other methods. Monetary finance is again shown to have no real effects.

in George Alogoskoufis, Tryphon Kollintzas and George Provopoulos (eds), Essays in Honor of Constantine Drakatos, Athens, Papazissis. 

Debts, Deficits and Growth in Interdependent Economies

We investigate the effects of budgetary policies on growth rates, external debt, real interest rates and the stock market valuation of capital in a two-country, overlapping-generations model of endogenous growth. A worldwide rise in the public debt/GDP ratio, or the share of government consumption, reduces savings and growth. They also increase real interest rates and depress the stock market because of the adjustment costs of investment. A relative rise in one country’s debt/GDP ratio or its GDP share of government consumption results in a reduction in its ratio of external assets to GDP. Growth rates are equalized unless there are differences in investment adjustment costs or depreciation rates. Per capita output levels do not necessarily converge.
(with Rick van der Ploeg), in Baldassarri Mario, Massimo Di Matteo and Robert Mundell (eds), International Problems of Economic Interdependence, London, Macmillan (1994).

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.

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).

On Budgetary Policies, Growth, and External Deficits in an Interdependent World

We investigate the effects of budgetary policies in a two-country model of overlapping generations and endogenous growth. In the presence of capital mobility, endogenous growth rates are equalized, but output levels do not converge. A worldwide rise in the public debt to GDP ratio or the share of government consumption reduces savings and growth. A relative rise in one country’s debt to GDP ratio or its GDP share of government consumption results in a fall in external assets and its relative savings rate. In the short run, the fall in the savings rate is higher, and the country experiences higher current account deficits as a percentage of GDP.

Journal of the Japanese and International Economies (with Rick van der Ploeg)

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