Christian Richter

Monetary Integration in the Ex-Soviet Union: A 'Union of Four'?

The governments of four ex-Soviet countries recently discussed forming a currency union. To examine the economic feasibility of this proposition, we use conventional techniques and show that the arrangement is likely to find it difficult to handle the lack of structural symmetry, the asymmetric pattern of shocks, and the lack of market flexibility among the potential participants. Moreover, the union would be a unilateral one. It would require an unusual degree of political commitment to survive. Nonetheless, there are some subtleties in the timing and pattern of mutual dependence between Russia and Kazakhstan, and to a lesser extent in Belarus, which may reduce the strain from a currency union in those countries. Otherwise, the black market will have to provide the necessary market flexibility.

Have Europe’s labour markets become more flexible? An exercise in measuring the relative flexibility of wages across countries and time

Wage and price flexibility, and the structural and institutional reforms required to induce this kind of flexibility, have now become the leading economic issue in Europe. This is not a new development. It has long been argued that structural reforms were a necessary condition for a successful monetary union (Delors, 1989). Nor has this gone unrecognised within Europe itself. The Lisbon Agenda, agreed in 2000, was introduced precisely to create greater market flexibility.

On the Transmission Mechanism of Monetary Policy

In this paper we analyze the monetary transmission mechanism. In general, the monetary transmission mechanism describes how policy-induced changes in the nominal money stock or the short-term nominal interest rate impact on real variables such as aggregate output and employment. Specific channels of monetary transmission operate through the effects that monetary policy has on interest rates, exchange rates, equity and real estate prices, bank lending and firm balance sheets (Ireland 2005). Recent research on the transmission mechanism seeks to understand how these channels work in the context of dynamic, stochastic, general equilibrium models (e.g. Barran et al. 1995; Boivin and Giannoni 2006; Fukuda 1993; Golinelli and Rovelli 2005; Goodhart and Hofmann 2005; Kim 2003; Lutkepohl and Wolters 2003).

Time Varying Cyclical Analysis for Economies in Transition

The identification of a possible European business cycle has been inconclusive and is complicated by the enlargement to the new member states and their transition to market economies. This paper shows how to decompose a business cycle into a time-frequency framework in a way that allows us to accommodate structural breaks and nonstationary variables. To illustrate, calculations of the growth rate spectrum and coherences for the Hungarian, Polish, German and French economies show the instability of the transition period. However, since then there has been convergence on the Eurozone economy at short cycle lengths, but little convergence in long cycles. We argue that this shows evidence of nominal convergence, but little real convergence. The Maastricht criteria for membership of the Euro therefore need to be adapted to test for real convergence.

Quantitative Economic Policy — Theory and Applications: Introduction and Overview

With this Festschrift, we would like to honour Andrew Hughes Hallett on the occasion of his 60th birthday. Andrew’s achievements in economics are outstanding and we will return to that again later. Moreover, he has been and still is an excellent supervisor for PhD students, whose work covers a broad range of economics. It is therefore difficult to categorize Andrew in terms of one particular field of economics. Maybe the common ground of anyone who has ever worked with Andrew is that theories always have to be tested empirically. This is why one of the areas this book emphasizes is hypothesis testing. As with Andrew’s work itself, this book covers a wide variety of topics.

MEASURING SPILLOVER AND CONVERGENCE EFFECTS IN THE ASIA-PACIFIC REGION

This paper tests the hypothesis that the links and dependency relationships in the Asia-Pacific region have changed over the past 20 years with the industrialisation of China, and the emergence of Japan as a source of finance and sophisticated manu- factures. Has this changed the size and direction of spillovers in the region, and has it curtailed or eliminated American economic leadership? We use time-varying spectral methods to decompose the linkages between 6 advanced Asian economies and the US. We find: (a) the links with the US have been weakening, while those within a bloc based on China have strengthened; (b) that this is not new - it has been happening since the 1980s, but has now been partly reversed with the surge in trade; (c) that there are (may be) two Pacific blocs, one based on China and one on Japan; (d) that the links with the US are rather complex, with the US still able to shape the cycles elsewhere through her control of monetary conditions, and China/Japan influencing the size of those cycles; and (e) there appears to be no real evidence that pegged exchange rates per se encourage convergence, but the reverse may be true.

On the Efficiency of Capital Markets: An Analysis of the Short End of the UK Term Structure

In this chapter, we analyze the term structure of interest rates in a novel way. We test to what extent the UK short-term interest rate is determined by the short-term US interest rate, and how much by the UK monetary instrument. In other words, we test jointly whether and to what extent the uncovered interest parity (UIP) and/or the expectations hypothesis (EH) of the term structure of interest rates holds.