Characteristics of the Euro, the Demand for Reserves, and Policy Coordination Under Emu

What about a world of currency? Proposal for a common currency among rich democracies. One world money, then and now.

“…A number of economists (e.g. Bergsten(1997Bergsten( , 1999, Masson and Turtelboom(1997), Portes and Rey(1998)) have suggested that exchange rate volatility between the dollar and the euro may well be higher than it was between the dollar and the German mark before 1999. The reasons are partly structural --euroland is much more self-contained than the individual countries were, so exchange rate variation will cause fewer internal disturbances, hence fewer calls for action to stabilize exchange rates; and partly institutional, since the newly created European Central Bank is charged with pursuing price stability, not stabilizing currency values 2 .…”

Multimod Mark III: The Core Dynamic and Steady State Model

“…18 The inclusion of explicit behavioral hypotheses about production (or net exports) of oil, primary commodities, and nontradables in the main developing country model, along with an explicit hypothesis about the availability of external finance to the main group of developing countries, adds important elements of reality to MULTIMOD's characterization of the aggregate current account position of the developing countries and, thus, the equal and 14 As noted earlier and elaborated in Section V, inflation expectations are only partially forward looking. 15 See Masson and Symansky (1992), Masson and Turtelboom (1997), and the discussion in Section VIII below. 16 In Mark III, the group comprises six high-income oil exporters-Kuwait, Libya, Oman, Qatar, Saudi Arabia, and United Arab Emirates-corresponding to the World Economic Outlook group of capital-exporting developing countries.…”

“…There is, of course, no technical limitation on the number of small country models that can be inserted into the core model, although care needs to be exercised about modeling the interactions among these economies. One example of such an exercise is provided by Masson and Turtelboom (1997). These authors create country-specific models for each of the 15 countries of the European Union (except for Luxembourg, which is modeled jointly with Belgium) and then perform stochastic simulations of the model in order to examine the relative variability of macroeconomic variables under different assumptions about monetary arrangements within this group of countries.…”

EMU, Adjustment, and Exchange Rate Variability

“…3Cohen (1997), p. 409. Masson and Turtelboom (1997) address the issue by performing stochastic simulations with a version ofMULTIMOD that contains 14 separate models for the EU countries. Their results indicate that the effects of EMU on exchange rate variability will depend on the type of policy reaction function adopted by the European Central Bank and on the degree of international policy coordination.…”

“…This setup allows us to focus on countries production and trade structures when investigating whether the institution of monetary union between two of the countries will alter the international macroeconomic adjustment and lead to a different volatility of their exchange rate vis-a.-vis the third country. Following several of the other studies cited above, the pre-EMU regime is 4The model employed by Masson and Turtelboom (1997) differs considerably from those analyzed in the other studies. The structure ofMULTIMOD is much richer than that of the other models, but the larger size ofMULTIMOD provides less understanding of the underlying intuition.…”