Process Of Monetary Integration Research Articles

The monetary policy trilemma from the perspective of European integration

AbstractFollowing the breakdown of the Bretton Woods agreement the international monetary system has operated based on floating exchange rate arrangements and free capital mobility. A most significant subsequent improvement has been the process of European monetary integration, from the institution of the European Monetary System to the Euro currency. The relationships between the short‐term interest rates of European Union (EU) countries and the United States suggest, that in the post‐Bretton Woods period the US dollar has held an important anchor currency role, while EU countries acquired considerable monetary policy independence. Further, the stronger relationships between the short‐term interest rates of EU countries and Germany may be viewed as a consequence of monetary unification. The econometric evidence provides important insights for the period following the adoption of the Euro, when European economies have in many instances been subject to heterogeneous shocks.

Niels Thygesen: An Academic in the Making of European Monetary Union

Niels Thygesen (born 1934) played for nearly five decades an influential role as a policy orientated academic, especially in the process of economic and monetary integration in Europe. He is especially known as a member of the Delors Committee and as the first Chair of the European Fiscal Board. As part of a re-search program on collecting memories, this paper publishes the results of several interviews with him. His early life offers insightful observations on the develop-ment of the economics profession in the postwar years (he was close to Nobel Prize laureates as Franco Modigliani and Milton Friedman). Thygesen's involvement with the process of European monetary integration really started in 1974 with his membership of the Marjolin Committee (which provided an assessment of the failure of the 1970 Werner Report). Since then he has been involved in a multitude of committees and initiatives, like the OPTICA groups, the All Saints Day Manifes-to, the Committee for Monetary Union in Europe (an initiative of Giscard and Schmidt) and the Euro50 Group.

Heterogeneity of financial institutions in the process of economic and monetary integration in East Asia

AbstractThe paper aims to assess the influence of the heterogeneity of financial institutions in the relationship between bilateral trade and the monetary integration process in East Asia. I used a structural gravity model with similarity of currency regimes, and I introduced a variable of heterogeneity of financial institutions derived from the World Bank Financial Development and Structure Dataset. The main hypothesis is that the more heterogeneous financial institutions are, the less bilateral trade there is. The results show a negative relationship between trade and the heterogeneity of the financial institutions. A secondary hypothesis is that the potential positive effects of the monetary integration diminish after the introduction of the variable depicting the heterogeneity of financial institutions. The similarity of currency regimes has a negative effect on bilateral trade and that effect increases with the presence of the heterogeneity of financial institutions variable. I made a second estimation concerning 184 countries and territories. The results confirmed the negative and significant relationship between the heterogeneity of the financial institutions and trade. The recent reform plans of ASEAN countries should also consider these aspects, which are not limited to financial integration problems.

Heterogeneity of Financial Institutions in the Process of Economic and Monetary Integration in East Asia

The paper aims to assess the influence of the heterogeneity of financial institutions in the relationship between bilateral trade and the monetary integration process in East Asia. I used a structural gravity model with similarity of currency regimes and I introduced a heterogeneity of financial institutions variable derived from the World Bank Financial Development and Structure Dataset. The hypothesis is that the more heterogeneous financial institutions are, the less bilateral trade there is. The results show a negative relationship between trade and the heterogeneity of the financial institutions. The similarity of currency regimes has a negative effect on bilateral trade, and that effect increases with the presence of the financial institutions variable. I made a second estimation concerning 184 countries and territories and I replaced the similarity of currency regimes with a standard currency dummy. The results confirmed the negative and significant relationship between the heterogeneity of the financial institutions and trade. The recent reform plans of ASEAN countries should also consider these aspects, which are not limited to financial integration problems.

SYNCHRONICITY AND SIMILARITY OF BUSINESS CYCLES; CROATIA VIS À VIS NEW EMU COUNTRIES

The introduction of the euro for Croatian citizens meant the abandonment of the deutsche mark, a reliable currency, which had been used for a long time for comparison purposes and savings. Today, Croatia is a small, opened, indebted and highly euroised country, in which frequently mentioned introduction of euro is seen as a solution that could improve country’s economic position. The question of a common monetary policy is closely related to the issue of business cycle coherence between the members of such an area. Although a cycle in economic activity is a stylized fact, in economics it is less clear as to when the fluctuations in macroeconomic variables coincide between countries/regions and when these dynamics synchronize and/or converge. By analyzing two measures of business cycle coherence, namely synchronicity and similarity, between Croatia and new EMU members, we want to reconcile with vast empirical evidence supporting the hypothesis that monetary integration process results from a greater business cycle convergence and leads to an optimal currency area which finally leads to greater economic welfare in each of the member countries. Estimations are based on deviation cycle approach. Results in general indicate relatively similar cycle dynamics across the observed variables, suggesting that Croatia satisfies this selective criterion for its inclusion into the monetary union. Nonetheless, monetary integration is far more complicated issue, hence it requires further scientific verification and conceptualization.

Optimal Currency Area and European Monetary Membership: Economics and Political Economy

The recent Global Crisis are posing challenges to the stability of the European Monetary Integration process. The pillar of the European Monetary Integration is the evolution of the European Monetary Union (EMU). Being the EMU the establishment of a currency union, such as international agreement implies for the member countries the inability to use exchange rates and national monetary policy to deal with real and financial shocks. It is natural then to wonder under which conditions the net benefits of a currency union are likely to be positive, comparing the above mentioned limitations with the medium long term gains in having on the one side perpetual fixed exchange rates and on the other side the delegation of the monetary policy action to an independent and supranational central bank, i.e. the European Central Bank (ECB) that manages the European Monetary Union (EMU). A natural question arises: how to evaluate the economic pros and cons in having the EMU membership? The aim of this paper is to analyse the economics and the political economy of the EMU membership.

Desafios para uma nova governação na Zona Euro

O avolumar de impactos negativos da crise económico-financeira nos países mais frágeis da Zona Euro tem despoletado aceso debate sobre a viabilidade da arquitetura da União Monetária Europeia (UME), cuja imperfeição pode pôr em causa os objetivos últimos do processo de integração europeia. Com efeito, esta crise tem mostrado de forma eloquente que a UME teve lacunas graves no seu desenho e no quadro operacional que a suporta, o que não evitou efeitos penalizadores para alguns Estados-membros e alimentou a exigência de alterações estruturais no paradigma de governação da moeda única. Assim, foram surgindo diferentes iniciativas das instituições comunitárias, ancoradas em posições de autores bastante críticos sobre o processo de integração monetária europeia, e que paulatinamente têm vindo a transformar o modelo de governação da Zona Euro. Neste contexto, este artigo prossegue dois objetivos: por um lado, identificar e discutir a racionalidade e os fundamentos das principais mudanças que têm ocorrido na Zona Euro nos últimos anos; por outro, refletir sobre os dilemas que em variadas ocasiões têm oposto a necessidade de maior legitimidade das decisões de cariz intergovernamental e a eficiência requerida pelo complexo processo de construção europeia. Finalmente, abordaremos as condições políticas e técnicas para uma governação eficaz que permita melhorar a resiliência da Zona Euro no seu todo e aumentar a sua eficácia.

(Modeling the Processes of Economic and Monetary Integration)

Russian Abstract: 1 января 2015 года вступил в силу договор о Евразийском экономическом союзе между Республикой Беларусь, Республикой Казахстан и Российской Федерацией. Со 2 января 2015 года вступил в силу Договор о присоединении Республики Армения к Договору о Евразийском экономическом союзе, с 6 августа 2015 года – Договор о присоединении Кыргызской Республики к Договору о Евразийском экономическом союзе. Договор подразумевает создание экономического союза, в рамках которого обеспечивается создание единых рынков товаров и услуг, единых рынков факторов производства, а также выполнение странами-участницами соглашений по гармонизации кредитно-денежной, бюджетно-налоговой и валютной политики.Цель работы: проанализировать факторы, влияющие на благосостояние России и стран ЕАЭС в процессах экономической интеграции. English Abstract: On 1 January 2015, the Treaty on the Eurasian Economic Union between the Republic of Belarus, the Republic of Kazakhstan and the Russian Federation entered into force. Since January 2, 2015, the Treaty on the Accession of the Republic of Armenia to the Treaty on the Eurasian Economic Union has entered into force, and since August 6, 2015 - the Agreement on Accession of the Kyrgyz Republic to the Treaty on the Eurasian Economic Union. The contract implies the creation of an economic union, within the framework of which it is ensured the creation of unified markets for goods and services, common markets for factors of production, as well as the implementation by member countries of agreements on harmonization of monetary, fiscal and monetary policies. Objective of this work is to analyze the factors affecting well-being of Russia and Countries of the EEA in the processes of economic integration.

(De)Stabilizing Exchange Rate Strategies in East Asian Monetary and Economic Integration

The East Asian monetary integration process is at the crossroads. Given very benign liquidity conditions in the US, the prevailing common US dollar peg has contributed to growing macroeconomic and financial instability in the region. This has sparked demands to embark on an independent monetary integration process in East Asia. The paper shows that, however, neither the Japanese yen nor the Chinese yuan can challenge the US dollar as anchor currency in the region. Large fluctuations of the Japanese yen against the US dollar have undermined the potential of the Japanese yen to become a regional anchor currency. Exchange rate stability of the Chinese yuan against the US dollar has enhanced intra-regional exchange rate stability and growth, stressing the potential of the Chinese yuan to emerge as a regional anchor currency. Yet, it is shown that underdeveloped Chinese capital markets and financial repression originating in US low interest rate policies constitute an insurmountable impediment for the Chinese yuan to gain anchor currency status in East Asia. Empirical estimations provide evidence in favor of positive growth effects of the exchange rate stability against the US dollar in East Asia.

(DE)STABILIZING EXCHANGE RATE STRATEGIES IN EAST ASIAN MONETARY AND ECONOMIC INTEGRATION

The East Asian monetary integration process is at the crossroads. Given very benign liquidity conditions in the US, the prevailing common US dollar peg has contributed to growing macroeconomic and financial instability in the region. This has sparked demands to embark on an independent monetary integration process in East Asia. The paper shows that, however, neither the Japanese yen nor the Chinese yuan can challenge the US dollar as anchor currency in the region. Large fluctuations of the Japanese yen against the US dollar have undermined the potential of the Japanese yen to become a regional anchor currency. Exchange rate stability of the Chinese yuan against the US dollar has enhanced intra-regional exchange rate stability and growth, stressing the potential of the Chinese yuan to emerge as a regional anchor currency. Yet, it is shown that underdeveloped Chinese capital markets and financial repression originating in US low interest rate policies constitute an insurmountable impediment for the Chinese yuan to gain anchor currency status in East Asia. Empirical estimations provide evidence in favor of positive growth effects of the exchange rate stability against the US dollar in East Asia.

The role of the swiss franc in Switzerland’s European stance

The case of Switzerland appears to be unique with regards to the European economic and monetary integration process, which began in 1957: although the country has had close and growing links with the European Union (EU) over time, it does not want to access full membership. Even though this situation of high integration without full membership entails certain constraints, it is also interesting for Switzerland in many respects. In particular, it allows the country to preserve the sovereignty of its money, which is the backbone of Switzerland’s modern existence. That is why I consider that the Swiss Franc is at the core of Switzerland’s European stance.

An analysis of the EU optimum currency area

Robert Mandel in 1961 published his famous article 'The theory of optimum currency area' where he presented his idea about optimal monetary area. Almost 40 years later, in 1999, the European Union (EU) has set up its own monetary area with a common currency, the euro, and since 2002 the euro is used as a means of payment in the EU. Since the beginning of the process of monetary integration in Europe there has been discussion as to whether the European Monetary Union (EMU) can be qualified as an optimal currency area and about the decision of the member states to introduce the common currency. Faced with the current crisis of the common currency, this skepticism becomes more intense, and it seems now to be the right time for a discussion on the Theory of optimum currency areas (OCA) and for an examination of the criteria for creation of a common currency area. This paper provides an answer to the question whether EMU is an optimal currency area. The answer is based on the analyses of a case study.

Monetary Union is the future of EAEU

The president of Russian Federation V. Putin's Order from the 10th of March 2015 to the Government and Central Bank of Russia to work on the plan of creating Monetary Union of EAEU by the 1st of September cannot be ignored by scientific community's attention of Russia and other Eurasian countries. Strategic goal of this document is pretty clear - to create an island of currency stability in the surrounding of Jamaica's Monetary nonsystem and existing monopolar and assimetric world's dollar order, to minimize the dependency of Eurasian countries on US dollar, to hold its world expansion, to freeze the process of financing of USA imbalances by all countries, to turn back the process of dollarization of Eurasian countries and world's dollarization and relieve the world's community from future financial crises. The world's financial and economic crisis of 2008-2010 has clearly shown that US monetary, credit and banking system has become a permanent source of future turmoil of world's scale. It creates a necessity to activate the process of monetary integration of countries on the regional level and transformation of the modern Jamaica's world's dollar standard into the world's multipolar monetary standard. In this article the author analyses he stages of setting up the Eurasian regional monetary order from the creation of multilateral settlement system using common regional currency unit to the introduction of Eurasian currency system with Eurasian currency unit, which can be transformed in the future into the Eurasian Economic and monetary union with common regional currency (euras), which can restrict the world's monopoly position of the dollar.

The Political Economy of Italy in the EMU: What Went Wrong?

Although Italy was amongst the most enthusiastic founding members of the European Economic Community in 1957, the Italian capacity to respect the imperatives of European integration could not, and, still, cannot, be given for granted, as the recent sovereign debt crisis demonstrates. Apart from the many structural inconsistencies that persist not only in the economic, but also in the political and social organization of the country, also the public debate is sometimes characterised by a tendency to blame the process of Europeanisation for the less palatable decisions taken by the national institutions. This article addresses the sub-national, national and supranational dimensions of the process of Italian Europeanisation focusing in particular on the role of domestic socio-economic actors in influencing monetary policy decision making processes. The article is based on field research conducted by the author both in Italy and Brussels. The main object of this research effort was to analyse to what extent the outcomes of the process of European monetary integration have been influenced by domestic politics and by domestic economic interest groups in Italy with the final aim of assessing the impact of Italian entry into the EMU and especially its future within it. Thus, at the core of this research lies the following question: What is the role of domestic politics and domestic interest groups in monetary policy-making? The theoretical starting point of this interpretation of the process of European monetary integration is represented by an integrated domestic-foreign policy focusing on the role of economic interest groups in defining national exchange rate and monetary policy decisions. It is not here the place to discuss the different theories explaining the process of European integration and, more specifically, of the issue of European monetary integration. Here it will simply be underlined that, to explain foreign economic policy choices, policy outcomes need to be linked to domestic politics.

Moving Towards Monetary Integration in East Asia: Achieving Economic Convergence in a Game-Theory Framework

This paper considers the current perspective of coordinating efforts to stabilize exchange rates in East Asia, viewed as the first and essential stage of monetary integration process. In this context, the effects of asymmetric demand and supply shocks affecting the two countries are considered, with the help of a game-theory model, and the outcomes from cooperative and non-cooperative fiscal policy responses are analyzed. The properties of fixed-exchange rate arrangements are analytically treated and numerically simulated in a situation where fiscal policies are left as the only device to deal with asymmetric shocks, both on the demand side and the supply side. The model prediction is that both asymmetric demand and supply shocks may be contrasted with the help of fiscal policies, without damaging consequences for the fixed-exchange rate arrangement. The model also suggests that the results will prove better when the fiscal response to the asymmetric shocks is coordinated. Not differently than what happened in Europe following the implementation of end stages of monetary integration, asymmetric fiscal policy response to asymmetric supply shocks may bring about the piling up of huge public debt, and pave the way to sovereign debt crises. Arguably, in such a situation joint fiscal responsibility may help reinforcing the process of integration and convergence.

Theory of Optimum Financial Areas: Retooling the Debate on the Governance of Global Finance

This article examines the institutional preconditions for stable financial integration in a ‘theory of optimal financial areas’ (OFA). This theory is modelled on the theory of optimal currency areas that has been used to inform the process of monetary integration. Where it differs from optimum currency area (OCA) theory is in focussing on capital mobility and cross-border financial transactions rather than concentrating on exchange rates or macroeconomic adjustment. We contend that OCA theory misdirects both the analysis and the policy response: it is more pertinent to ask what makes for financial stability under conditions of market integration than what makes for stable currencies and smooth macroeconomic adjustment. The article proposes six ‘criteria’ that should be met in order to stabilize an integrated financial ‘market geography’. Three of these criteria relate to the technical substructure of markets, and include a shared risk free asset, centralized sovereign debt management, and common market infrastructures for communication, clearing, settlement and depository. Three further criteria focus on the macro-prudential considerations like shared rules for financial supervision, centralized lender of last resort facilities for private- and public-sector market participants, and common provision for the resolution of failed private- and public-sector borrowers. These criteria are controversial both individually and as an interdependent package. Nevertheless, they are important to mitigate the costly dynamics of financial market disintegration under crisis conditions. We use case studies of the Great Britain, the United States and Canada to show how national governments have stumbled toward a similar set of arrangements to stabilize domestic financial market integration. The more recent experience of the European Union shows this pattern applies across countries as well. We conclude with a research agenda based on these considerations.

Testing for external sustainability under a monetary integration process. Does the Lawson doctrine apply to Europe?

Abstract Monetary integration, and more specifically, the creation of a monetary union in Europe, raises new economic questions concerning its functioning and governance. In particular, we focus on the implications of high and persistent current account deficits for the economic performance of monetary union members in the medium term. Recent literature has argued that conventional measures of external sustainability are misleading because they omit the effects of capital variations on net foreign asset positions due to, among others, stock or debt market crises. In this paper we revisit external sustainability making use of the database developed by Lane and Milesi-Ferretti (2007) that includes these “valuation effects”. The sample period studied covers from the launching of the monetary integration process in Europe (the creation of the European Snake in 1972) up to 2011. Our econometric methodology accounts for the increasing cross-section dependence among EMU countries as well as for possible structural breaks endogenously determined. The results point to the need of abrupt adjustments, either led by the markets or promoted by pro-active policy measures, in order to offset external disequilibria. These results would give support to the surveillance measures proposed by the European Commission (2009, 2010a) and would reject the Lawson's doctrine of “laissez-faire”.

INDEX SHODY HOSPODÁŘSKÉHO CYKLU ČESKÉ REPUBLIKY A VYBRANÝCH ZEMÍ STŘEDNÍ A VÝCHODNÍ EVROPY S EUROZÓNOU

The paper deals with the evaluation of the preparedness of the Czech Republic and other candidate countries to join the Eurozone. The main goal is to asses the level of business cycle similarity in the selected Eurozone member and candidate countries using the Concordance index. Business cycle similarity belongs among the criteria defined within the theory of optimum currency areas. The first order differencing procedure, Hodrick-Prescott filter and Christiano-Fitzgerald band pass filter were used to identify the classical and growth GDP cycles. The results show that the Czech Republic belongs among the states with relatively high level of concordance comparing to the other Eurozone member and candidate countries. Accordingly, the measure of business cycle concordance should not serve as an argument for slowing down of the monetary integration process in the Czech Republic. The resultant concordance measures also give an evidence of relatively low level of the business cycle similari­ty of Slovak economy and the Eurozone, which might imply a possibly higher risk of the asymmetric shock occurrence in Slovakia.

Why Is Monetary Integration not Achievable in the ECOWAS? A Survey of the Challenges and the Way Forward

The ECOWAS Monetary Cooperation Progamme (EMCP) was designed to facilitate regional trade through improvement in the ECOWAS multilateral payments system, the harmonization of economic policies and evolvement of common institutional arrangements. However, the EMCP, adopted in Abuja in 1987, has not recorded the desired progress. This paper is a theoretical survey of the factors that have inhibited the progress of monetary integration in the ECOWAS. Although monetary integration in the ECOWAS is envisaged to increase intra-trade among member countries, facilitate the establishment of a single capital market, improve macroeconomic policy coordination, strengthens common monetary authority, encourage freedom of movement of persons and also lead to market enlargement, it is not without challenges. The paper notes that the major challenges hindering the monetary integration process in the ECOWAS include; low intra-trade among member countries, fear of domination by the larger, wealthier and stronger countries, loss of revenue, uneven distribution of the benefits of integration, political instability, ethnic and religious crises and lack of political will and commitment on the part of member countries among other factors. The paper therefore, submits that the encouragement of intra-trade within the ECOWAS sub-region, massive investment in transport and communication infrastructures within the region, and improved government political will and commitment to implementing the monetary integration agreements would foster effective monetary integration in the ECOWAS for maximum benefits of all members.Key words: Benefits, Costs, Challenges, Monetary Integration.

Teaching and Learning About European Union

The Project we are introducing has as main objective to provide teachers and students with a summary and collection of data in web and multimedia format with interactive information about relevant topics of the European Union.The European Union is an international example in the study and analysis of the processes of economical, monetary and political integration. Our objective is to create an interactive platform where teachers and students can access to the basic information about the EU in an easy and intuitive way.In order to elaborate this material we have used free software. This web page has been made using the platform ex-learning. In addition, we have added other web resources 2.0 of free access, that let us make digital books with pdf – issue – to build time timelines (with dipity application), or transform power point presentation in flash (using “ispring free”). The target of this is to apply the available web tools in order to produce teaching material that can be more attractive and practical and simplify the task of searching information for teachers and researchers.