Introduction Of The Euro And The Monetary Policy Of The European Central Bank

by Shigeyuki Hamori, Naoko Hamori

Overview

The Euro area is an extremely unique and important currency area for two reasons. First, it is the single largest currency area to be created in an industrialized region and is important as a test case for regions contemplating the establishment of new currency areas, such as East Asia and North America. Second, it was established by sovereign states working as peers, which, despite various challenges, peacefully and autonomously decided to create a single currency area.Marking the 10th anniversary of the creation of the European Central Bank (ECB) and the Euro, this invaluable book analyzes the monetary policy of the ECB — the guardian of the Euro — by using recently developed econometric methods. The analysis performed in this book marks a substantial contribution toward understanding the significance of the Euro area as well as the future of the Euro from an international perspective.

Product Details

ISBN-13:	9789812838421
Publisher:	World Scientific Publishing Company, Incorporated
Publication date:	11/19/2009
Pages:	220
Product dimensions:	6.10(w) x 9.00(h) x 0.90(d)

Table of Contents

Preface vii

About the Authors xv

1 History of the EU Monetary Union 1

1.1 Introduction 1

1.2 Various Experiments Toward Achieving the Monetary Union 1

1.2.1 Werner Report 1

1.2.2 Snake 5

1.2.3 European Monetary System (EMS) 7

1.3 Contents of the Monetary Union 11

1.3.1 Delors Report 11

1.3.2 Maastricht Treaty 13

1.3.3 EMI Report: The Changeover to the Single Currency 15

1.3.4 Amsterdam Treaty 16

1.4 EMI Roles 19

1.4.1 Establishment and Organization 19

1.4.2 Mission 19

1.4.3 Authority 23

1.5 Decision Process on State Participation in the Monetary Union 24

1.5.1 EMU Participation Criteria 24

1.5.2 Participation Criteria Fulfillment Conditions 25

1.5.3 EMU Member State Decision Process 28

1.6 General Overview 29

2 Empirical Analysis of the Money Demand Function in the Euro Area 31

2.1 Introduction 31

2.2 Model 34

2.3 Aggregate Data Analysis 35

2.3.1 Data 35

2.3.2 Demand for M1 36

2.3.3 Demand for M2 40

2.3.4 Demand for M3 45

2.4 Panel Data Analysis 48

2.4.1 Data 48

2.4.2 Demand for M1 49

2.4.3 Demand for M2 52

2.4.4 Demand for M3 54

2.5 Some Concluding Remarks 57

3 Monetary Policy Rule of the European Central Bank 59

3.1 Introduction 59

3.2 The Taylor Rule 61

3.3 Data 63

3.4 Empirical Results 65

3.4.1 Simple Taylor Rule 65

3.4.2 The Role of Long-term Interest Rate 67

3.5 Some Concluding Remarks 69

4 Empirical Analysis of the Term Structure of Interest Rates in the Presence of Cross-Section Dependence 71

4.1 Introduction 71

4.2 Model 73

4.3 Data 75

4.4 Empirical Results 76

4.4.1 Empirical Results with Cross-Section Independence 76

4.4.2 Empirical Results with Cross-Section Dependence 78

4.5 Some Concluding Remarks 84

5 Are Budget Deficits Sustainable in the Euro Area? 87

5.1 Introduction 87

5.2 Model 92

5.3 Data 93

5.4 Empirical Results 94

5.5 Some Concluding Remarks 96

6 Yield Spread and Output Growth in the Euro Area 99

6.1 Introduction 99

6.2 Models 102

6.3 Aggregate Data Analysis 103

6.3.1 Data 103

6.3.2 Empirical Results 104

6.4 Panel Data Analysis 107

6.4.1 Data 107

6.4.2 Empirical Results 108

6.5 Some Concluding Remarks 112

7 International Capital Flows and the Feldstein-Horioka Paradox 115

7.1 Introduction 115

7.2 Data 117

7.3 Empirical Model 118

7.4 Empirical Results 119

7.5 Sub-Sample Analysis 122

7.6 Some Concluding Remarks 123

8 Nominal and Real Exchange Rate Fluctuations: Euro, US Dollar, and Japanese Yen 125

8.1 Introduction 125

8.2 Data 128

8.3 Bivariate System 130

8.3.1 Empirical Techniques 130

8.3.2 Empirical Results 132

8.4 Trivariate System 134

8.4.1 Empirical Techniques 134

8.4.2 Empirical Results 137

8.5 Some Concluding Remarks 141

9 Euro Area Enlargement 143

9.1 Introduction 143

9.2 Existing EU Member State Group 145

9.2.1 Greece 145

9.2.2 Denmark 147

9.2.3 The UK 151

9.2.4 Sweden 157

9.3 Accession Countries 159

9.4 EMU Participants 160

9.4.1 Slovenia 160

9.4.2 Cyprus 162

9.4.3 Malta 164

9.4.4 Slovakia 165

9.5 ERM II Participants 167

9.6 Countries that are not ERM II Participants 173

9.7 Outlook for the Future 180

Appendix A Panel FMOLS and Panel DOLS 185

Bibliography 187

Index 197