Konjunktur Further Research by Members of the Shadow Council

Thomas Mayer

»  Financial System Modernisation and Growth in Europe: Financial Managers for the Economy.

Thomas Mayer argues that monetary policy needs to better understand the changes in risk appetite it causes on financial markets through the variation of the risk free rate in order to avoid unexpected and nasty side-effects of monetary policy actions.

Ansgar Belke and Thorsten Polleit
»  (How) Do Stock Market Returns React to Monetary Policy?<</a>
An ARDL Cointegration Analysis for Germany
The authors find that they cannot empirically reject the view that the Bundesbank – and then the ECB – have had a significant short- and long-run impact on stock market returns. They conclude that short-term rates drive stock market returns but not vice versa.The paper was published in Journal for Applied Econometrics

Daniel Gros, Thomas Mayer and Angel Ubide
»  A world out of balance?
The ECB watching committee of the Centre of European Policy Studies examines scenarios, which could lead to an unwinding of global imbalances. They warn of serious risks to the world economy

Willem Buiter with Anne Sibert
»  Eurozone Entry of New EU Member States from Central Europe: Should they? Could they?”
will be published in Development and Transition, UNDP-LSE Newsletter, later in 2006
A brief summary is: yes, quite a few of them should and could, but probably only one will. The reason for the discrepancy is that the ECB and the less enlightened elements of the European Commission won’t let them, for reasons that would be laughable if the matter were not so serious.

Willem Buiter
»  It’s a long way to Copenhagen?
Motivated by optimistic official reports, especially by the World Bank’s recent Country Economic Memorandum for Turkey, Willem Buiter, Professor at the European Institute of the London School of Economics and Political Science, argues that Turkey could become a true tiger economy. But with the institutions and policies of the second half of the 20th century, it could end up a mangy cat instead of a tiger.

Julian Callow
»  2006: The year of transition and synchronisation
In a Barclays Capital research note Julian Callow compares the emerging post-deflation strategy of the Bank of Japan to the monetary policy strategy of the ECB and finds some striking parallels.

Charles Wyplosz
»  European Monetary Union: The Dark Sides of a Major Success, Economic Policy April 2006
Wyplosz gives a positive assessment of EMU, while highlighting some flaws like an ill-designed Stability and Growth Pact. He finds a tension between stated principles and pragmatic actions but concludes that the Eurosystem has acted wisely so far.

Philip Lane

»  The Real Effects of EMU , Discussion Paper February 2006

Philip Lane assesses the experience with monetary union. He finds that EMU has acted to amplify cyclical divergences across the member countries, but attributes this partly to one-off adjustments to a new environment. He conjectures that the positive effect on trade and financial integration might dominate in the long run. According to his analysis the euro area is still some distance from the definition of an optimum currency area and it is still an open question, if national economies will prove to be sufficiently flexible to enable smooth adjustment in the event of a major asymetric shock or a financial crisis.

Agnès Bénassy-Quéré with Eduard Turkisch
ECB-Governance in an Enlarged Europe, , »  Working Paper, Dezember 2005
The authors examine the new voting rules, which the ECB will adopt after Enlargement of the Eurozone. They calculate nationally desired interest rates and find that the ECB board will normally have the pivotal votes. Therefore, the "cost" of enlargement for the old members is restricted to the fact that the interest rate desired by the board is higher after enlargement.

Paul De Grauwe with Claudia Costa Storti from Banco de Portugal
Is Monetary Policy in the Eurozone Less Effective than in the US? »  CESifo Working Paper, November 2005
De Grauwe and Costa Storti perform a meta study of research on the effects of monetary policy in the US and in the Eurozone countries. They find that the widely asumed handicap of the ECB in the form of lower effectiveness of monetary policy due to rigidities in the Eurozone economies is not supported by economic research.

Thorsten Polleit with Dieter Gedesmeier from the ECB
Measures of Excess Liquidity, »  Discussion Paper, August 2005,
The paper gives an overview over the various measures of excess liquidity and lays out its theoretical underpinnings. The authors caution, that the practical usufulness relies on the stability of money demand, an emprirical question, which they do not address in this paper.

Daniel Gros with Ansgar Belke from University Hohenheim
Asymmetries in the Trans-Atlantic Monetary Policy Relationship: Does the ECB Follow the Fed?
»  CESifo Working Paper, March 2005 Only sometimes say Gros and Belke. Sometimes the ECB follows the Fed, sometimes it is the other way round.

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