The export performance of the French economy relative to its own past and relative to a major trading partner, Germany, has deteriorated. The risk analysis indicates that French firms have seen a significant improvement in the corporate health, and seem resilient to the recent financial shock despite differences across firms. Several issues in the context of common EU tax policy formation, including carbon pricing, control problems associated with the zero-rating of intra-EU supplies, and possible movement toward a common corporate tax base need to be addressed.
This Selected Issues paper for France provides an analytical framework to explain the consequences of the downward shift in the unemployment/wages relationship. This framework is also used to analyze possible changes in the equilibrium unemployment rate resulting from cuts in employers’ social security contributions and movements in the user cost of capital. The contribution of wage moderation to the reduction in the equilibrium unemployment is quantified. The paper also addresses the question of fiscal benefits of job-rich growth in France during 1997–2000.
U.S. shocks explain a large part of French output common components. This paper analyzes the economic implications of two alternative welfare financing reforms: a reduction in payroll taxes funded by an increase in consumption taxes, and the other funded by a new levy on business value added. The importance of financial market constraints and whether the recent mortgage market reform is likely to ease these constraints is assessed. Rechargeable mortgages are attractive and encourage collateralization, but bolder measures are needed to limit legal and other fees.
This paper discusses the underlying objectives of the exchange rate regime are necessarily related to broader objectives of the international financial system and the international economy. The exchange rate regime should help to promote a satisfactory working of the adjustment process. The exchange rate regime should help to promote, or at least support, the pursuit of economic and financial policies that contribute to countries’ domestic objectives, as regards both real economic variables and financial variables, notably including the degree of price stability. Attainment of the underlying objectives for the exchange rate regime suggests a number of instrumental or operational desiderata, which are listed below without regard to potential conflict between them and therefore without consideration of any trade-off among themselves. A system of adjustable parities and narrow margins should score well on the objective of exchange stability, provided that the adjustments are not too large or too frequent.
In the United States and a few European countries, inventory behavior is mainly the outcome of demand shocks: a standard buffer-stock model best characterizes these economies. But most European countries are described by a modified buffer-stock model where supply shocks dominate. In contrast to the United States, inventories boost growth with a one-year lag in Europe. Moreover, inventories provide limited information to improve growth forecasts particularly when a modified buffer-stock model characterizes inventory behavior.
A simple two-country stochastic model is used to analyze monetary policy interaction in a system of exchange rate bands such as the EMS, in the context of internationally-integrated financial markets. We consider the widely-acknowledged asymmetry of the system, as it pertains to member countries’ use of monetary policy to offset shocks that impinge on their national incomes. Our results suggest, among other things, that tightening the exchange-rate bands would lead to more intervention by all members, even if formal responsibility for keeping exchange rates within the bands lay only with the peripheral countries.
Once upon a time, in the 1990s, it was widely agreed that neither Europe nor the United
States was an optimum currency area, although moderating this concern was the finding that
it was possible to distinguish a regional core and periphery (Bayoumi and Eichengreen,
1993). Revisiting these issues, we find that the United States is remains closer to an optimum
currency area than the Euro Area. More intriguingly, the Euro Area shows striking changes
in correlations and responses which we interpret as reflecting hysteresis with a financial
twist, in which the financial system causes aggregate supply and demand shocks to reinforce
each other. An implication is that the Euro Area needs vigorous, coordinated regulation of its
banking and financial systems by a single supervisor—that monetary union without banking
union will not work.
Yishay Yafeh, Mr. Kenichi Ueda, and Mr. Stijn Claessens
Financial frictions have been identified as key factors affecting economic fluctuations and growth. But, can institutional reforms reduce financial frictions? Based on a canonical investment model, we consider two potential channels: (i) financial transaction costs at the firm level; and (ii) required return at the country level. We empirically investigate the effects of institutions on these financial frictions using a panel of 75,000 firm-years across 48 countries for the period 1990 - 2007. We find that improved corporate governance (e.g., less informational problems) and enhanced contractual enforcement reduce financial frictions, while stronger creditor rights (e.g., lower collateral constraints) are less important.
The multilateral exchange rate model (MERM), like most large models in use, is continuously changing because of ongoing work to improve its logical structure and to increase its empirical content, and also because of the need to modify the model in response to changing economic conditions, thus maintaining its usefulness as a tool for studying policy alternatives. As a result, the description of the MERM presented by Artus and Rhomberg (1973) is now somewhat out of date, and it was felt that an updated description of the model, hereinafter referred to as MERM 2, was needed. At the same time, the basic theoretical approach, which has not changed, is explained further, and the main macroeconomic assumptions are made more explicit.
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