Moïse Sidiropoulos

The Sustainability of Fiscal Policies in the European Union

This paper examines the stationarity of the inclusive-of-interest public deficit for five European Union economies, four of them being recently selected for entry into the European Monetary Union. Unit root tests are used not only to examine structural breaks and cointegration analysis, but also to investigate for regime shifts. They support the occurrence of sustainable deficits for the Greek, Spanish, and Portuguese economies. On the contrary, Italy and Belgium may incur unsustainable deficits, implying that their selection in Phase 2 of the European Monetary Union is questionable.

Robust Control and Monetary Policy Delegation

This paper adapts in a simple static context the Rogoffs (1985) analysis of monetary policy delegation to a conservative central banker to the robust control framework. In this framework, uncertainty means that policymakers are unsure about their model, in the sense that there is a group of approximate models that they also consider as possibly true, and their objective is to choose a rule that will work under a range of di¤erent model specifications. We find that robustness reveals the emergence of a precautionary behaviour in the case of unstructured model uncertainty, reducing thus governments willingness to delegate monetary policy to a conservative central banker.

Fiscal Policy, Institutional Quality and Central Bank Transparency

This paper examines the issues of institutional quality and central bank transparency through the interaction of monetary and fiscal policies. We have found that the effects of transparency and corruption on macroeconomic performance and volatility depend on the relative importance of the marginal supply-side effects of distortionary tax and corruption, the degree of central bank conservativeness and/or the initial degree of opacity about central bank preferences. If the marginal effect of tax is relatively important, more opacity might induce higher level and volatility of inflation when the central bank is sufficiently conservative. Furthermore, opacity and tolerated corruption can mutually reinforce or weaken each other’s effects on the level and volatility of inflation. Transparency is generally a better strategy when the central bank is conservative. However, there could be a case for opacity in order to compensate for the undesirable macroeconomic effects of corruption when the central bank is liberal.

Designing Fiscal Institutions in a Monetary Union

This article explores the policy and wealth consequences of alternative institutional arrangements through which fiscal policy interacts with monetary policy in a monetary union such as the EMU. The central issue of the article is the design of the appropriate monetary and fiscal institutions through a comparison of alternative arrangements to distribute power over monetary and fiscal authorities between the central authority of the union and the individual members of the union and evaluating their performance. The main results of this article reveal that delegation of the fiscal policy to a council of country representatives and the monetary policy to a council of governors is the appropriate institutional design to reduce inflation bias and better stabilize regional, idiosyncratic supply and demand shocks in a monetary union.

Robust Monetary Policy Under Uncertainty About Central Bank Preferences

In this paper, we study the impact of central bank opacity on macroeconomic performances in a new Keynesian framework with model uncertainty using robust control techniques. We identify a new source of central bank opacity, which refers to the lack of information about the central banks preference for robustness in the sense of Hansen and Sargent. We find closed-form solutions for the robust control problem, analysing the impact of the lack of transparency about the central banks preferences for robustness. We show that an increased transparency about the central banks preference for robustness makes monetary policy respond less aggressively to cost-push shocks, thus reducing the inflation and output gap variability. As a consequence, inflation and output gap are less volatile than under central bank opacity about its preference for robustness.

Has the ‘franc fort’ exchange rate policy affected the inflationary dynamics? Theory and new evidence

Abstract This paper examines the impact of the ‘franc fort’ policy implemented in France from 1983 on the inflationary dynamics by means of a square root Kalman filter approach. An interesting aspect of the analysis is the evidence that the ‘franc fort’ exchange rate policy had a significant impact on the inflationary dynamics in France through its credibility effects. These results confirm the imported credibility hypothesis according to which the French authorities accelerated the disinflation process by importing the German monetary policy credibility through the ‘hard peg’ of the franc–DM exchange rate. These findings show that inflation dynamics in France began to converge significantly to that in Germany after the implementation of the ‘franc fort’ policy, making more credible the plan for the final transition to the euro. Moreover, this analysis may also reveal much about the nature of potential success of the current initiative of the new member countries now in the process of joining the EU and looking eventually to adopt the euro.

Determinants of Central Bank Credibility and Macroeconomic Performance: Evidence from Eastern European and Latin American Countries

Abstract: In this paper, by using a vector autoregressive approach on panel data (PVAR) and decomposing the central bank credibility index into several important aspects highlighted in the literature, we emphasize the effects of these aspects of credibility on macroeconomic performance, and vice versa, for six emerging economies. A higher level of credibility is associated with lower interest rates, higher effective exchange rates, and a positive effect on economic activity. We show that the beneficial effects of credibility may be attributed mainly to achieved targets and past inflation. However, transparency and credible actions concerning public debt and country risk management can enhance these effects. Finally, an important policy implication might be the identification of the aspects of credibility that are altered when different shocks occur. We show that a positive long-term interest rate shock negatively affects the aspects of credibility concerning inflation performance and country risk, whereas in the case of a positive currency shock, credibility aspects concerning transparency, country risk, and fighting inflation improve.

An Empirical Investigation of the Price Linkages between Oil, Biofuels and Selected Agricultural Commodities

Abstract This paper uses monthly data to investigate the dynamic linkages between the prices of crude oil, biofuels and selected agricultural commodities. We apply the ARDL approach to cointegration, in conjunction with Granger causality tests. The empirical evidence supports the existence of significant causal effects revealing strong interdependencies among the examined markets.

Monetary policy transparency and inflation persistence in a small open economy

Using a New Keynesian small open economy model, we examine the effects of central bank transparency on inflation persistence. We have found that more opacity could reinforce the effect of persistent shocks on the level and variability of endogenous variables if the difference between the interest elasticity of domestic goods demand and the degree of trade openness is sufficient large or sufficiently low, judging on structural parameters characterising the economy, the central bank preference and its initial degree of opacity. Our result implies that, under perfect capital mobility, a high degree of domestic financial development is a good reason for increasing the transparency.

Testing the Credibility of Stabilization Programmes: Evidence from Greece

This paper tests the size and the diffusion effect of the credibility factors of the stabilization programme implemented in Greece in 1985, by means of a two-step procedure which focuses on the analysis of the time-series properties of the parallel market premium and the inflation process. An interesting aspect of the analysis is the evidence that the stabilization plan gained credibility rapidly, and its impact on the inflation dynamics was significant. Copyright @ 2000 by John Wiley & Sons, Ltd. All rights reserved.