Anne Sibert

Monetary union and labor market reform

Abstract Policy makers’ incentives to undertake costly labor market reform depend on the international monetary system. A regime of noncooperative monetary policy is compared with monetary union. We find that noncooperative policy leads to more reform of factors that affect the inflation bias. Which regime leads to more reform of factors affecting labor market flexibility depends on the size of monetary policy spillovers and the degree of correlation of supply shocks. We show that monetary union produces higher expected inflation, but a lower variance of inflation. Welfare can be higher or lower with monetary union.

The Icelandic Banking Crisis and What to Do about it: the Lender of Last Resort Theory of Optimal Currency Areas

According to the authors of CEPR Policy Insight No. 26, Iceland has two options: either join the EU and EMU and keep its international banking activities domiciled in Iceland, or retain its own currency and move its foreign currency banking activities to the euro area.

Monetary Integration and Economic Reform

Recent research in contract theory views ownership as a substitute for complete contracts. Here, this approach is applied to monetary integration. Countries face a coordination problem conducting monetary policy. Negative spillovers ensure uncoordinated policy generates too high inflation. Ex ante, policymakers can undertake politically costly economic reform. This has a positive spillover because it improves the outcome of the monetary policy game. Ex post contracting over policy may be possible but it supposed that ex ante contracting over reform and monetary policy is not. This paper analyzes when monetary union is a good substitute for this inability to commit.

The risk premium in the foreign exchange market

This paper presents a dynamic, optimizing model of the risk premium in the forward foreign exchange market. Agents face random endowments and money growth rates. Complete insurance markets do not exist and foreign exchange is held to hedge against risk. In some examples with log-linear preferences, the size of the risk premium in the forward market is related to the variability of output and money growth. An interesting conclusion of the model is that for plausible examples, the convexity component of the nominal risk premium (due to Siegels paradox) may be quite large relative to the total risk premium. Copyright 1989 by Ohio State University Press.

Credibility and Flexibility with Monetary Policy Committees

We consider independent monetary policy committees as a simple way of attaining relatively low inflation without completely sacrificing the stabilization role of monetary policy. If central bankers types are unknown, then for a wide range of parameters an independent monetary policy committee is better than either a mandated zero-inflation rule or discretionary policy conducted by an opportunistic central banker.

Is Transparency About Central Bank Plans Desirable

A central bank with private information about its preferences has an incentive to reduce its planned inflation to increase the publics perception of its inflation aversion and lower expected future inflation. A regime is said to be transparent if planned inflation is observable and reveals the central banks preferences and to be non-transparent if planned inflation is unobservable and can be only imperfectly inferred from actual inflation. A central bank in the non-transparent regime is said to become more transparent when actual inflation becomes a better signal of planned inflation. I find several results about transparent and non-transparent regimes: some are novel and some contrast with the results of earlier papers. In particular, I demonstrate that in a non-transparent regime, increased transparency need not improve the publics ability to infer a central banks private information. I show that society and central banks are better off with more transparency. My numerical results suggest that society and central banks prefer the transparent to the non-transparent regimes. (JEL: E42, E52, E58) (c) 2009 by the European Economic Association.

Capital Accumulation and Foreign Investment Taxation

This paper presents a dynamic, choice-theoretic general equilibrium model of capital accumulation in an open economy. Equilibria with and without capital mobility are described and compared. It is shown that neither is necessarily Pareto optimal and that an equilibrium with free trade in capital does not Pareto-dominate an equilibrium with autarky. The effects of restricting capital flows by taxing foreign investment earnings are discussed. It is seen that there will be no agreement within a country as to what constitutes an optimal tax.

Government Finance with Currency Substitution

Abstract We analyze seigniorage in an overlapping-generations model where a friction induces a precautionary demand for a weaker currency. The friction, which is modeled as a transactions cost, is viewed as an inverse measure of currency substitutability. Governments finance spending with costly income taxation or seigniorage. We show that if governments act independently, money growth is suboptimally low if currencies are sufficiently substitutable and too high otherwise. If money growth is suboptimally low, increasing substitutability lowers it further. However, since greater substitutability is associated with smaller real costs of exchanging money, welfare need not fall.

Strategic capital taxation in large, open economies with mobile capital

The purpose of this paper is to provide a methodologyfor computing time-consistent, strategic capital taxes in a largeopen economy and to analyze the nature of these taxes. Our resultssuggest that even if a full set of nondistortionary taxes isunavailable and even if the government has redistributive goals,the country which imports capital should tax corporate capitaland the capital exporter should subsidize it. We perform comparativestatics experiments to show how strategically chosen taxes varywith the parameters of the model. JEL classifications: H21,E62

The Foreign Exchange Risk Premium: Is It Real?

This paper presents a numerical analysis of an optimizing, equilibrium model of the risk premium in the forward foreign exchange market. An overlapping-generations model with incomplete markets is employed. Because the equilibria are analytically intractable, the model must be solved numerically. The authors show how changes in the distribution of the exogenous variables affect the distribution of the risk premium. They find that the properties of the real risk premium have far more intuitive appeal than those of the more commonly employed nominal risk premium. Copyright 1995 by Ohio State University Press.