Giancarlo Marini

The Inflationary Consequences of a Currency Changeover: Evidence from the Michelin Red Guide

This paper examines the inflationary consequences of a currency changeover in a simple model of the catering market. It is shown that the change in cash denomination acts as a coordination device shifting the industry to a high-price equilibrium. Empirical evidence based on data from the Michelin Red Guide strongly supports the predictions of our model against competing explanations. A permanent change in relative prices has taken place in Euroland, with strong redistributional effects in favour of some segments of the catering sector.

Monetary Policy and Fiscal Rules

This paper presents a Dynamic New Keynesian model with wealth effects to study the performance of monetary policy under Ricardian and non-Ricardian fiscal regimes. The model is calibrated to euro area quarterly data. The interactions between fiscal policy and interest rate rules have critical implications for equilibrium uniqueness. Within the class of Ricardian fiscal rules, active monetary policies are not necessary for equilibrium determinacy. However, monetary authorities overreacting to inflation not only improve macroeconomic performance, but also generate similar outcomes under different fiscal rules. Conversely, under non-Ricardian fiscal regimes, interest rate pegs are predicted to reduce inflation variability.

Fiscal Deficits and Currency Crises

This paper investigates currency and financial crises in an optimizing general equilibrium model. It is shown that a rise in current and expected future budget deficits generates a real exchange rate appreciation and a decumulation of external assets, leading up to a currency crisis when foreign reserves approximate a critical level. Strong empirical support for our model is obtained by a probit estimation for Latin American and Asian countries.

Bank competition and ECB's monetary policy

In a model of oligopolistic competition in the banking sector, we analyse how the monetary policy rule chosen by the Central Bank can influence the incentive of banks to set high interest rates on loans over the business cycle. We exploit the basic model to investigate the potential impact of EMU implementation on collusion among banks. In particular, we consider the possible eAects of the European Central Bank’s policy criteria with regard to the cost of credit in national markets. ” 2000 Elsevier Science B.V. All rights reserved.

The Inflationary Consequences of a Currency Changeover on the Catering Sector: Evidence from the Michelin Red Guide ∗

This paper examines the inflationary consequences of a currency changeover in the catering market. Empirical evidence from the Michelin Red Guide shows that: i) differently from restaurants in non-euro countries, restaurants in the euro area experienced abnormal price increases just after the changeover, ii) among restaurants in the euro area, tourist restaurants are responsible for most of the abnormal price increases. These results suggest that proposed explanations for the changeover effect such as menu adjustment and rounding up are only part of the story. We present a simple model of the catering market that is consistent with the evidence.

Expectations and Systemic Risk in EMU Government Bond Spreads

This paper explores the determinants of 10-year sovereign bond spreads over the German Bund benchmark in the Euro Zone from 2000 to 2013, relying on cross-country quarterly data panel analysis. The paper focal point is the role of contagion and euro break-up risks in widening the sovereign bond yield differentials among EU member countries. Using a novel synthetic index capable of monitoring the sustainability of currency unions, the paper finds that market expectations of a euro’s break up and contagion from Greece were fundamental drivers of sovereign risk premia in peripheral countries.

Social Security and Intergenerational Equity

This paper considers the implications of social security for intergenerational equity. It shows that a balanced-budget unfunded system can be optimal even in a dynamically efficient economy without uncertainty and externalities. The relevant criteria for the optimality of the public transfer program are equity among generations and time consistency. The scheme can survive adverse shocks if the well-being of the elderly at each point in time is sufficiently valued.

Models of Speculative Attacks and Crashes in International Capital Markets

Currency and financial turmoils in international capital markets have been the focus of an extensive theoretical research which started around 30 years ago. This paper provides a synthetic overview of this theoretical modeling. We analyze the basic analytical framework corresponding to the dominant theoretical approaches, and discuss their extensions to include the financial sector, contagion across markets and countries, capital flows and borrowing constraints, strategic interactions among agents and equilibrium selection. In the final section we focus on the relevant policy issue of crisis prevention and optimal foreign regime choice in a world of full financial integration.

Indicators and Tests of Fiscal Sustainability: An Integrated Approach

This paper shows that indicators and tests of government solvency should not be used alternatively. We present a simple and intuitive procedure to integrate simultaneously the results from the two approaches to fiscal sustainability. An application to U.S. post-World War II data demonstrates the empirical relevance of the proposed strategy. Our results suggest that U.S. fiscal policy is on a sustainable path, since the warning predictions of tax gap indicators merely reflect cyclical factors.

Inflation Expectations, Price Flexibility, and Output Variability in Macro Models

Abstract This paper demonstrates that inflation expectations may be destabilizing even in models with both rational expectations and flexible prices. The proposition that increased wage (price) flexibility may exacerbate employment and output fluctuations is also analytically confirmed in a variety of macroeconomic models with nominal inertia. Active demand management is shown to be a superior stabilizing tool than increased nominal price flexibility.