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 clear change in policy regime in Greece around 1974 offers an opportunity to assess the extent to which economic performance depends on institutional underpinnings. For twenty years up to 1974, Greece enjoyed rapid growth, high investment and low inflation; during the next twenty years, growth and investment collapsed and inflation became high and persistent.
I describe the political background to such clear institutional change, and the nature of the two economic regimes: the first providing coordination and commitment mechanisms to sustain adequate returns for high investment, the second failing to do so. The same change in political climate after 1974 raised public sector deficits and debt, fuelling a trade deficit and monetary expansion. Entry to the EC did not cause the economic slowdown in Greece, but transfers from the EC did mask the underlying problem, delaying necessary adjustment. Recent attempts to reverse Greece’s fortunes are in the right direction but as yet inadequate.
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This paper provides a coherent framework of endogenous growth and overlapping generations with money in the utility function and inelastic labor supply. Monetary growth permanently affects real growth. An increase in monetary growth then no longer leads to an identical increase in inflation,and also money is no longer the sole determinant of inflation in the long run. We also show that increases in public debt and public consumption damage growth prospects and thus increase inflation even when accompanied by increases in lump-sum taxes and a constant rate of growth of the nominal money supply.
Journal of Money, Credit and Banking (with Rick van der Ploeg)
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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.
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.
We investigate the applicability of the ‘rational partisan’ and ‘exchange rate regime’ models of inflation to the case of Greece. Greece has fully participated in the Bretton Woods system of gxed exchange rates until 1972, but has since followed an independent ‘crawling peg’ policy. It has had a polarized political system and a problem of persistently high inflation in the last two decades. Outside fixed exchange rate regimes, persistently high inflation can be attributed to the failure of political parties to pre-commit to price stability. The higher aversion of ‘socialists’ to unemployment results in an inflation rate which is higher by 8 percentage points than under the more anti-inflationary ‘conservatives’. Unemployment is independent of the identity of the party in power and elections.
European Journal of Political Economy (with Apostolis Philippopoulos)
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