Labor Immobility And The Transmission Mechanism Of Monetary Policy In A Monetary Union

In an estimated two-sector New-Keynesian model with durable and nondurable goods, an inverse relationship between sectoral labor mobility and the optimal weight the central bank should attach to durables inflation arises. The combination of nominal wage stickiness and limited labor mobility leads to a nonzero optimal weight for durables inflation even if durables prices were fully flexible. These results survive alternative calibrations and interestrate rules and point toward a non-negligible role of sectoral labor mobility for the conduct of monetary policy.

This collection brings together both classic articles which have laid the foundations for the theory of optimum currency and the resulting empirical literature. Articles are presented in sections on the theory of optimum currency areas, empirical analysis of optimum currency areas, fiscal policies in a monetary union, the central bank in a monetary union, and issues of transition to monetary union. Most articles were originally published in the 1990s. The editor teaches international economics at the University of Leuven, Belgium. c. Book News Inc.

"The optimal currency literature has stressed the importance of labor mobility as a precondition for the success of monetary unions. But only a few studies formally link labor mobility to macroeconomic adjustment and policy. In this paper, we study macroeconomic dynamics and optimal monetary policy in an economy with cyclical labor flows across two distinct regions that share trade links and a common monetary framework. In our New Keynesian dynamic, stochastic, general-equilibrium model calibrated to the United States, migration flows are driven by fluctuations in the relative labor market performance across the monetary union. While labor mobility can be an additional channel for cross-regional spillovers as well as a regional shock absorber, we find that a mobile labor force closes the efficiency gaps in the labor market and thus lessens the trade-off between inflation and labor market stabilization. As migration flows are generally inefficient, however, region-specific disturbances introduce additional trade-offs with regional labor market conditions. Putting some weight on stabilizing fluctuations in the labor market enhances welfare when monetary policy follows a simple rule"--Abstract, page ii.

The study analyses the impact of monetary and fiscal policy pursued by one member country of an exchange rate union on its own macroeconomic performance as well as on those of the other member countries and of the rest of the world. Since the analytical framework is defined by a three-country model many results from the traditional policy coordination literature, which relies on two country models, are qualified. Particular attention is paid to the implications of asymmetries between the EC member countries. Furthermore, the structural parameters are in some instances not taken as given but as responsive to the unification process. The study is a reference concerning the theoretical analysis of currency unions. It is also of interest for those concerned with European integration.

United States monetary policy has traditionally been modeled under the assumption that the domestic economy is immune to international factors and exogenous shocks. Such an assumption is increasingly unrealistic in the age of integrated capital markets, tightened links between national economies, and reduced trading costs. International Dimensions of Monetary Policy brings together fresh research to address the repercussions of the continuing evolution toward globalization for the conduct of monetary policy. In this comprehensive book, the authors examine the real and potential effects of increased openness and exposure to international economic dynamics from a variety of perspectives. Their findings reveal that central banks continue to influence decisively domestic economic outcomes—even inflation—suggesting that international factors may have a limited role in national performance. International Dimensions of Monetary Policy will lead the way in analyzing monetary policy measures in complex economies.

The European Community is negotiating a new treaty to establish the constitutional foundations of an economic and monetary union in the course of the 1990s. This study provides the only comprehensive guide to the economic implications of economic and monetary union. The work of an economist inside the Commission of the European Community, it reflects the considerations influencing the design of the union. The study creates a unique bridge between the insights of modern economic analysis and the work of the policy makers preparing for economic and monetary union.

Asian economies strengthened their monetary and currency management after the Asian financial crisis of 19971998, and came through the global financial crisis of 20072009 relatively well. Nevertheless, the recent global crisis has presented new challenges. This book develops recommendations for monetary and currency policy in Asian economies aimed at promoting macroeconomic and financial stability in an environment of global economic shocks and volatile capital flows. Monetary and Currency Policy Management in Asia draws lessons from crises and makes concrete macroeconomic policy recommendations aimed at minimizing the impacts of an economic and financial downturn, and setting the stage for an early return to sustainable growth. The focus is on short-term measures related to the cycle. The three main areas addressed are: monetary policy measures, both conventional and unconventional, to achieve both macroeconomic and financial stability; exchange rate policy and foreign exchange reserve management, including the potential for regional cooperation to stabilize currency movements; and ways to ease the constraints on policy resulting from the so-called 'impossible trinity' of fixed exchange rates, open capital accounts and independent monetary policy. This is one of the first books since the global financial crisis to specifically and comprehensively address the implications of the crisis for monetary and currency policy in emerging market economies, especially in Asia. Presenting a broad menu of policy options for financial reform and regulation, the book will be of great interest to finance experts and policymakers in the region as well as academics and researchers of financial and Asian economics as well as economic development.