Diana N. Weymark

Heterogeneity in a Currency Union with Social Market Objectives

In this paper, we explore whether heterogeneity among union members could threaten the stability of the European Monetary Union. The types of heterogeneity we consider are (1) asymmetries in the transmission of monetary and fiscal policies, and (2) differences in national preferences for price stability, output growth, and income redistribution. Our results show that the costs of membership can be significant for countries whose transmissions, structure, or preferences deviate from those underlying the common monetary policy. In part, these costs arise because monetary policy imposed by an independent central bank automatically constrains the use of fiscal policy by national governments.

Is Sterilized Intervention Effective? New International Evidence

This paper applies a new measure of the effectiveness of sterilized interventions to data for 16 economies. The measure is defined as the difference between ex ante(xaEMP) and ex post exchange market pressure(xpEMP). xaEMP is calculated on the basis of a counterfactual that no intervention takes place and this is the rationally expected policy. xpEMP is the degree of exchange market pressure that remains based on the actual intervention policy in place. Based on a sample of 12 emerging markets, and Hong Kong, Korea, Japan, and Singapore, we conclude that sterilized interventions have persistent exchange rate effects. However, we also show empirically that this success also took place during a period of substantial growth in foreign exchange reserves.