Velayoudom Marimoutou

Is there a structural break in equilibrium velocity in the euro area

We investigate the stability of M3 income velocity in the euro area. We apply a set of breakpoint procedures to examine this issue and conclude that at least one structural change occurred around 2000-2001. We also find evidence of another structural break around 1992-1993. These two breaks seem to affect both the level and the slope of the income velocity of M3. We then estimate a model of equilibrium velocity that factors in the opportunity cost of M3, along the lines suggested by Orphanides and Porter (2000). Here again, we find some evidence of instability in equilibrium velocity. Given the importance of the assumption of stable velocity trends for both the derivation of the reference value and the two-pillar strategy of the Eurosystem, these findings question the relevance of some excess liquidity indicators directly computed from the reference value and may call for some adjustments in the conduct of the ECBs monetary policy.

An Evaluation of the Performance of P-star as an Indicator of Monetary Conditions in the Perspective of EMU: The Case of France

The distinction between instruments, intermediate objectives, indicators and final objectives of monetary policy is widely used in academic works as well as by monetary authorities. Among these different concepts, the notion of monetary indicator is the most difficult to handle since it refers in practice to two different concepts (see Dewald, 1967; Davis, 1990). The first one means that the indicator is a scale which is used to measure the orientation of the policy implemented by the authorities (Brunner and Meltzer, 1967; 1969). The second one implies that the indicator provides information on the expansionary or restrictive character of the monetary effects, taken broadly. In order to avoid any confusion, it is better to refer to the first one strictly speaking as a monetary policy indicator and to the second one as an indicator of monetary conditions.

The Effects of the Minimum Wage in Czechoslovakia

The effects of the minimum wage on employment in Western economies are relatively uncontroversial. The introduction of a minimum wage in Czechoslovakia at the start of the transition, and its increase one year later, gives the opportunity to evaluate to what extent its effects on employment seem to have been comparable to those known for market economies. In order to go further than the measure of direct effects on employment, estimates and simulates a small‐scale macro‐econometric model over the period February 1991 to September 1992, which takes into account the feedback effects of the direct change in employment through other macroeconomic variables. These feedback effects seem to accentuate the increase in the level of employment generated by a fall in the minimum wage by two‐thirds after a term.

Are Dollar Exchange Rates Cointegrated After All

Movements in the exchange rate of the dollar against the major currencies have occupied the centre stage on foreign exchange markets and in the preoccupations of specialists of international finance ever since the beginning of the floating exchange rate period. However, it is the appreciation of the dollar in the first half of the 1980s which has aroused special interest. Indeed, over such a period — even though this would go against the assumption of weak efficiency — one is tempted to search for a common trend in the exchange rates of major currencies vis-a-vis the dollar. This indeed has been the object of a lively controversy over the last few years. Baillie and Bollerslev (1989) opened the debate, using the two-step Engle-Granger technique and the more powerful Johansen test (see also chapter 4), by showing that a unique cointegrating relationship exists between the spot dollar exchange rates of the G6 currencies plus the Swiss franc over March 1980–January 1985 using daily data. However, the ‘fragility’ of such a result was evidenced by Sephton and Larsen (1991), who argued that the Johansen test exhibits a strong sensitivity to the time period on which it is based; that is, the choice of the sample period is crucial in determining the existence (or absence) of cointegration.