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http://www.irpp.org/po/archive/may01/friedman.pdf - 0 views

www.irpp.org/...friedman.pdf Friedman Mundell euro
shared by Gene Ellis on 01 Aug 12 - No Cached
  • Gene Ellis on 01 Aug 12
     
    Bob Mundell and Milton Friedman discuss/debate the euro
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Kenen on the euro | vox - 0 views

www.voxeu.org/kenen-euro
shared by Gene Ellis on 26 Jan 13 - No Cached
  • Early work on optimum currency areas by Robert Mundell had emphasised the symmetry or asymmetry of disturbances hitting different regional economies as a key criterion on which to gauge their suitability for sharing a common currency.
  • Peter took this insight further by arguing that disturbances were often sector specific and that the diversification of regional economies was therefore a key consideration in gauging their suitability for monetary union (the better diversified an economy was, the less likely it was to be badly destabilised by a sector-specific shock). (Kenen 1969).
  • We now know that Kenen flagged a problem for which the Eurozone could have been better prepared. With an outsized capital-goods producing sector, Germany benefitted from a strong positive shock as a result of China’s emergence onto the global stage, given the Chinese economy’s voracious appetite for capital goods.
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  • Portugal and Italy, on the other hand, specialised much more heavily in consumer-goods producing sectors and felt the brunt of Chinese competition. No Eurozone member was sufficiently well diversified to shrug off this kind of shock, something that should have made the euro’s architects think twice.
  • Specifically, they should have thought again, Kenen argued, about the coordination of national fiscal policies, the need for a common Eurozone budget, and mechanisms for transferring fiscal resources from booming to depressed regions.
  • More than any other economist, Peter understood that monetary union was a legal as well as an economic construct. His careful parsing of the Maastricht Treaty explained to the economics profession exactly what the treaty did and did not allow (Kenen 1992).
  • Peter even anticipated the debate over TARGET2 imbalances, observing in 1999 that it was possible to “easily conceive of conditions…in which one [national central bank] would be reluctant to build up claims indefinitely on some other national central bank.” (Kenen 1999).
  • Finally, Peter observed that the possibility of a member state exiting from the Eurozone could not be ruled out but warned that European officials should be cautious in bandying about the idea (Kenen 1999). “The costs of defecting,” he wrote back in 1999, “could be very high.”
  • Gene Ellis on 26 Jan 13
     
    Good Eichengreen, Wyplosz EUVox article on Peter Kenen and insights on why the Euro might have difficuties.
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"A Centerless Euro Cannot Hold" by Kenneth Rogoff | Project Syndicate - 0 views

www.project-syndicate.org/...a-centerless-euro-cannot-hold euro hold kenneth project syndicate GDP
shared by Gene Ellis on 05 Apr 12 - No Cached
  • The bad news is that it has become increasingly clear that, at least for large countries, currency areas will be highly unstable unless they follow national borders.
  • With youth unemployment touching 50% in eurozone countries such as Spain and Greece, is a generation being sacrificed for the sake of a single currency that encompasses too diverse a group of countries to be sustainable?
  • What of Nobel Prize winner Robert Mundell’s famous 1961 conjecture that national and currency borders need not significantly overlap? In his provocative American Economic Review paper “A Theory of Optimum Currency Areas,” Mundell argued that as long as workers could move within a currency region to where the jobs were, the region could afford to forgo the equilibrating mechanism of exchange-rate adjustment.
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  • if intra-eurozone mobility were anything like Mundell’s ideal, today we would not be seeing 25% unemployment in Spain while Germany’s unemployment rate is below 7%.CommentsView/Create comment on this paragraph
  • Peter Kenen argued in the late 1960’s that without exchange-rate movements as a shock absorber, a currency union requires fiscal transfers as a way to share risk.
  • Europe, of course, has no significant centralized tax authority, so this key automatic stabilizer is essentially absent.
  • Many Germans today rightly feel that any system of fiscal transfers will morph into a permanent feeding tube, much the way that northern Italy has been propping up southern Italy for the last century. Indeed, more than 20 years on, Western Germans still see no end in sight for the bills from German unification.
  • Later, Maurice Obstfeld pointed out that, in addition to fiscal transfers, a currency union needs clearly defined rules for the lender of last resort. Otherwise, bank runs and debt panics will be rampant. Obstfeld had in mind a bailout mechanism for banks, but it is now abundantly clear that one also needs a lender of last resort and a bankruptcy mechanism for states and municipalities.
  • A logical corollary of the criteria set forth by Kenen and Obstfeld, and even of Mundell’s labor-mobility criterion, is that currency unions cannot survive without political legitimacy,
  • European policymakers today often complain that, were it not for the US financial crisis, the eurozone would be doing just fine. Perhaps they are right. But any financial system must be able to withstand shocks, including big ones.
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