Euro Area Policies Research Articles

Exchange rate uncertainty and FDI inflows: the case of Turkey

In this paper, using monthly data for the period of 2004–2014, we employ a Markov switching model to examine the impact of the level and volatility of real exchange rate (RER) on foreign direct investment (FDI) inflows to Turkey along with a set of control factors. Our estimation results do not support any effect of volatility or the RER. On the other hand, internal factors such as agglomeration effect, inflation, new incentive measures of 2009, and external factors such as Euro area policy interest rate and risk appetite turn out to be effective in driving FDI into the host country.

Euro Area Policies: Selected Issues

Euro Area Policies: Selected Issues

Euro Area Policies: Staff Report for the 2015 Article IV Consultations with Member Countries

Euro Area Policies: Staff Report for the 2015 Article IV Consultations with Member Countries

Euro Area Policies: Selected Issues

Euro Area Policies: Selected Issues

An Empirical Assessment of Optimal Monetary Policy Delegation in the Euro Area

We estimate a New Keynesian DSGE model for the Euro area under alternative descriptions of monetary policy (discretion, commitment or a simple rule) after allowing for Markov switching in policy maker preferences and shock volatilities. This reveals that there have been several changes in Euro area policy making, with a strengthening of the anti-inflation stance in the early years of the ERM, which was then lost around the time of German reunification and only recovered following the turnoil in the ERM in 1992. The ECB does not appear to have been as conservative as aggregate Euro-area policy was under Bundesbank leadership, and its response to the financial crisis has been muted. The estimates also suggest that the most appropriate description of policy is that of discretion, with no evidence of commitment in the Euro-area. As a result although both ‘good luck’ and ‘good policy’ played a role in the moderation of inflation and output volatility in the Euro-area, the welfare gains would have been substantially higher had policy makers been able to commit. We consider a range of delegation schemes as devices to improve upon the discretionary outcome, and conclude that price level targeting would have achieved welfare levels close to those attained under commitment, even after accounting for the existence of the Zero Lower Bound on nominal interest rates.

Euro Area Policies: 2014 Article IV Consultation-Staff Report; Press Release; and Statement by the Executive Director

Euro Area Policies: 2014 Article IV Consultation-Staff Report; Press Release; and Statement by the Executive Director

Euro Area Policies: Selected Issues Paper

Euro Area Policies: Selected Issues Paper

Euro Area Policies: 2012 Article IV Consultation: Selected Issues Paper

Euro Area Policies: 2012 Article IV Consultation: Selected Issues Paper

Euro Area Policies: Staff Report for the 2012 Article IV Consultation with Member Countries

Euro Area Policies: Staff Report for the 2012 Article IV Consultation with Member Countries

Euro Area Policies: 2011 Article IV Consultation-Staff Report; Public Information Notice on the Executive Board Discussion; and Statement by the Executive Director for Member Countries

"Volume 2011 (2011): Issue 184 (Jul 2011): Euro Area Policies: 2011 Article IV Consultation-Staff Report; Public Information Notice on the Executive Board Discussion; and Statement by the Executive Director for Member Countries" published on 18 Jul 2011 by International Monetary Fund.

Euro Area Policies: Spillover Report for the 2011 Article IV Consultation and Selected Issues

Euro Area Policies: Spillover Report for the 2011 Article IV Consultation and Selected Issues

Euro Area Policies: 2011 Article IV Consultation--Lessons from the European Financial Stability Framework Exercise; and Selected Issues Paper

The European Union’s (EU) financial stability framework is being markedly strengthened. This is taking place on the heels of a severe financial crisis owing to weaknesses in the banking system interrelated with sovereign difficulties in the euro area periphery. Important progress has been made in designing an institutional framework to secure microeconomic and macroprudential supervision at the EU level, but this new set-up faces a number of challenges. Developments regarding the financial stability may assist in the continuing evolution of the European financial stability architecture.

Controllability and Persistence of Money Market Rates along the Yield Curve: Evidence from the Euro Area

Abstract Controllability of longer-term interest rates requires that the persistence of their deviations from the central bank’s policy rate (i.e. the policy spreads) remains sufficiently low. This paper applies fractional integration techniques to assess the persistence of policy spreads of euro area money market rates along the yield curve. Independently from anticipated policy rate changes, there is strong evidence for all maturities that policy spreads exhibit long memory. We show that recent changes in the operational framework and the communication strategy of the European Central Bank (ECB) have significantly decreased the persistence of euro area policy spreads and, thus, have enhanced the ECB’s influence on longer-term money market rates.

Euro Area Policies: Selected Issues

Euro Area Policies: Selected Issues

Euro Area Policies: 2010 Article IV Consultation: Staff Report; Staff Supplement; Public Information Notice on the Executive Board Discussion; and Statement by the Executive Director for Member Countries

Euro Area Policies: 2010 Article IV Consultation: Staff Report; Staff Supplement; Public Information Notice on the Executive Board Discussion; and Statement by the Executive Director for Member Countries

Evaluating the Stresses from ECB Monetary Policy in the Euro Area

This paper investigates the extent to which euro area monetary policy has responded to evolving economic conditions in individual member states as opposed to the euro area as a whole. Based on a forward-looking Taylor rule-type policy reaction function, we conduct counterfactual exercises that compare the monetary policy behaviour of the ECB under alternative hypothetical scenarios: (1) the euro member states make individual policy decisions, and (2) the ECB responds to the economic conditions of individual members. Stress measures are then constructed to evaluate the degree of divergence of member state economies under these two hypothetical scenarios. The results we obtain reflect the extent of heterogeneity among the national economies in the monetary union, indicating that euro area policy rates have been particularly close to the ‘counterfactual’ interest rates of the largest euro members and countries with similar economic conditions, namely Germany, Austria, Belgium and France.

EMU: the last stand for the policy convergence hypothesis?

This paper explores the extent of euro area policy convergence during the third stage of EMU. The policy convergence hypothesis from international political economy posits that euro zone national economies should become more similar over time in terms of economic growth, employment and inflation outcomes as a result of using a common currency and taking the same regional monetary policy. Yet the descriptive data show little evidence of euro area policy convergence post-1999. One possible explanation for the lack of macroeconomic convergence within the euro zone is advanced (fiscal policy divergence), and the implications of policy divergence for the long-term viability of EMU are discussed.

Euro Area Policies: 2009 Article IV Consultation: Staff Report; Public Information Notice on the Executive Board Discussion; and Statement by the Executive Director for Member Countries

This 2009 Article IV Consultation focuses on euro area policies. The euro area remains in recession, with signs of improvement yet to evolve into a recovery. The large drop in financial wealth, an associated increase in private savings, tight financing conditions, and the adjustment of global imbalances are key drivers of the economic decline. Executive Directors have welcomed the broad arsenal of macroeconomic policies and financial sector interventions deployed by euro area authorities and Member States to address the crisis.

Euro Area Policies: Selected Issues

Euro Area Policies: Selected Issues

Recent French Export Performance: Is There a Competitiveness Problem?

Recently, the export performance of France relative to its own past and relative to a major trading partner, Germany, deteriorated. That deterioration seems related to the geographical destination and product composition of trend exports. Faced with an increase in unit labor costs or in its terms of trade, France adjusts relatively less via price and wage changes, and more via employment changes. Given that SMIC convergence resulted in a significant increase in unit labor costs, foreign sector difficulties might be structural. Trade flows relevance and euro area policy constraints highlight the importance of structural reforms that increase markets flexibility.