UNIVERSITAT AUTÒNOMA DE BARCELONA

COMPLETED PAPERS

The EMU accession countries are obliged to fulfill the Maastricht convergence criteria prior to entering the EMU. What should be the optimal monetary policy  satisfying these criteria? To answer this question, the paper proposes a DSGE model of a two-sector small open economy.

First, I derive the micro founded loss function that represents the objective function of the optimal monetary policy not constrained to satisfy the criteria. We find that the optimal monetary policy should not only target inflation rates in the domestic sectors and aggregate output fluctuations but also domestic and international terms of trade. Second, I show how the loss function changes when the monetary policy is constrained to satisfy the Maastricht criteria (constrained optimal policy). The loss function of such a constrained policy is characterized by additional elements  penalizing fluctuations of the CPI inflation rate, the nominal interest rate and the nominal exchange rate around the new targets which are different from the steady state of the optimal monetary policy.

Under the chosen parameterization, the optimal monetary policy violates two criteria: concerning the CPI inflation rate and the nominal interest rate. The constrained optimal policy is characterized by a deflationary bias which results in targeting the CPI inflation rate and the nominal interest rate which are 0.7% lower (in annual terms) than the CPI inflation rate and the nominal interest rate in the countries taken as a reference. Such a policy results in additional welfare costs that amount to 30% of the optimal monetary policy loss.

A Dependence Relationship between Small and Big Economies of Europe – SVAR analysis, UAB Master Thesis, September 2003

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The Maastricht Convergence Criteria and Optimal Monetary Policy for the EMU Accession Countries, November 2006 (JOB MARKET PAPER)

                

The goal of this paper is to study the implications of the different monetary regimes chosen in the EMU accession economies on the volatility of the variables summarising the Maastricht criteria, i.e.: inflation rate, nominal interest rate and nominal exchange rate. To that end, we build a small open economy DSGE model to study the real exchange rate determination in the short and long run since the movements in this variable summarise the pattern of the stabilisation of a small open economy in response to the shocks. Our benchmark analysis indicates that the managed float regime can attain the lowest consumption gap but this induces a trade – off between volatility of inflation and nominal interest rate. Additionally the sensitivity analysis indicates that the performance of the monetary regimes depends on the specific structure of a small open economy. In particular a small share of nontradables, a high degree of openness and a high pass through may be advocates for the managed regimes frequently observed in the EMU accession economies.

Monetary and Fiscal Aspects of Indirect Tax Changes in a Monetary Union

joint with L. von Thadden (ECB))

This paper is motivated by the recent decision of Germany to increase the Value Added Tax and overall shift recorded in a number of European countries to indirect taxes. In the framework of a DSGE model of a monetary union we investigate the effects of indirect tax shocks on other member countries and the union wide monetary policy. We explore number of issues: anticipated versus unanticipated indirect tax shocks, the effects of different fiscal and monetary feedback rules, heterogeneity of member countries.

WORK IN PROGRESS

The Maastricht Convergence Criteria and Optimal Interaction between Monetary and Fiscal Policy in the EMU Accession Countries

This paper extends the paper on the optimal monetary policy for the EMU accession by introducing the role for fiscal policy through endogeneized tax decisions. In the framework of a small open economy DSGE model we investigate the effects of the Maastricht criteria regarding the fiscal stability on the optimal monetary and fiscal policies in the EMU accession countries.

International Doctorate in Economic Analysis

The Maastricht Convergence Criteria and Monetary Regimes in the EMU Accession Countries, September 2006

Since the European Monetary Union (EMU) is comprised of many small economies (and there will be even more with the next expansion) it is of great importance for the success of the EMU that small economies experience similar shocks and have similar responses to the same shocks as the biggest countries. This paper uses a Structural Vector Autoregressive (SVAR) approach and quarterly data from 1980 to 2002 to investigate the character and importance of the transmission of shocks originating in the biggest economies of the EMU towards small economies. The findings suggest that there exists a strong heterogeneity among small European countries in the degree of their dependence on the biggest economies.