Hedging and invoicing strategies to reduce exchange rate exposure - a euro-area perspective

Domestic-currency invoicing and hedging allow internationally active firms to reduce their exposure to exchange rate variations. This paper argues that domestic-currency invoicing and hedging with exchange rate derivatives allow a fairly straightforward management of transaction and translation risk. Broader economic risk (which takes into account the impact of the exchange rate on competitiveness) is by its very nature harder to manage, but the paper argues that natural hedging provides possibilities for doing so. A novelty of this paper is a survey of actual hedging strategies and techniques of large euro-area corporations. The paper finds that euro-area exporters make ample use of instruments to limit the adverse impact of euro appreciation.Exchange rate risk, invoicing, hedging, derivatives, Hedging and invoicing strategies to reduce exchange rate exposure - a euro-area perspective, Economic Paper, D�hring

What drives inflation perceptions? A dynamic panel data analysis

At the moment of the euro cash changeover, inflation perceptions in the euro area deviated from measured inflation, and in some euro-area Member States in a persistent way. In recent years, a growing body of literature has developed on the factors that might explain this deviation. This paper formally tests various explanations advanced in this literature. It adopts a cross-country perspective at the level of the euro area which is empirically implemented through a dynamic panel data model. Inflation perceptions are found to be highly persistent (the autoregressive term is large and statistically highly significant). In contrast to much of the - descriptive - literature, an index of "out-of-the-pocket expenditure" is found not to explain inflation perceptions better than does the all-items HICP index. As suggested by psychological experiments, inflation expectations seem to contribute to the formation of inflation perceptions, although to a limited extent. Prices of residential real estate contribute significantly to inflation perceptions, suggesting that households have a broader view of the cost of living when forming inflation perceptions. Our results have implications for policy, for the further research agenda and for the development of statistics. In particular, the persistence of inflation perceptions makes us think that communication efforts prior to euro introduction are essential to anchor perceptions. Once perceptions increase, it will be much harder to bring them back in line with measured inflation.inflation, perceived inflation, dynamic panel data model, euro cash changeover, D�hring, Mordonu

Implications of EMU for Global Macroeconomic and Financial Stability

The paper examines the implications of EMU for world macroeconomic and financial stability, distinguishing EMU effects from other global factors at work. It concludes that EMU is having on the whole stabilising effects on the world economy, particularly in neighbouring regions.EMU, macroeconomic volatility, euro, international monetary system, implications of EMU for world macroeconomic and financial stability, Economic Papers, D�hring,

Good jobs, bad jobs and redistribution

We analyse the question of optimal taxation in a dual economy, when the government is concerned about the distribution of labour income. Income inequality is caused by the presence of sunk capital investments, which creates a 'good jobs' sector due to the capture of quasi-rents by trade unions. We find that whether the government should subsidise or tax investments is crucially dependent on union bargaining strength. If unions are weak, the optimal tax policy implies a combination of investment taxes and progressive income taxation. On the other hand, if unions are strong, we find that the best option for the government is to use investment subsidies in combination with either progressive or proportional taxation, the latter being the optimal policy if the government is not too concerned about inequality and if the cost of income taxation is sufficiently high.

Constraining the effective action by a method of external sources

We propose a novel method of evaluating the effective action, wherein the physical one- and two-point functions are obtained in the limit of non-vanishing external sources. We illustrate the self-consistency of this method by recovering the usual 2PI effective action due to Cornwall, Jackiw and Tomboulis, differing only by the fact that the saddle-point evaluation of the path integral is performed along the extremal quantum, rather than classical, path. As such, this approach is of particular relevance to situations where the dominant quantum and classical paths are non-perturbatively far away from one-another. A pertinent example is the decay of false vacua in radiatively-generated potentials, as may occur for the electroweak vacuum of the Standard Model. In addition, we describe how the external sources may instead be chosen so as to yield the two-particle-point-irreducible (2PPI) effective action of Coppens and Verschelde. Finally, in the spirit of the symmetry-improved effective action of Pilaftsis and Teresi, we give an example of how the external sources can be used to preserve global symmetries in truncations of the 2PI effective action. Specifically, in the context of an O(2) model with spontaneous symmetry breaking, we show that this approach allows the Hartree–Fock approximation to be re-organized, such that the Goldstone boson remains massless algebraically in the symmetry-broken phase and we obtain the correct second-order thermal phase transition

The Evolution of Economic Governance in EMU

This paper examines the benefits of co-ordination in EMU in a stylised manner and how these benefits have shaped the co-ordination framework in EMU. It then discusses in detail the co-ordination experience in four areas that are particularly important for the functioning of EMU: (i) fiscal policy co-ordination under the Stability and Growth Pact (SGP); (ii) the co-ordination of structural policies under the Lisbon Strategy for Growth and Jobs; (iii) the representation and co-ordination of euro-area positions in international financial fora; and (iv) the co-ordination of macroeconomic statistics. The thrust of the findings is that EMU's system of economic governance has, overall, proven fit for purpose. The current policy assignment to the institutions and instruments that govern the conduct of economic policy in EMU is sound, even though further progress is necessary in several areas, particularly as regards external representation.Governance, EMU, euro area, co-ordination, van den Noord, D�hring, Langedijk, Nogueira-Martins,Pench, Temprano-Arroyo, Thiel

The effects of matter density uncertainties on neutrino oscillations in the Earth

We compare three different methods to evaluate uncertainties in the Earth's matter density profile, which are relevant to long baseline experiments, such as neutrino factories.Comment: 3 pages, 1 figure. Talk given at the NuFact'02 Workshop, London, 1-6 July, 200

Direct detection of Mycobacterium tuberculosis in respiratory samples from patients in Scandinavia by polymerase chain reaction

ObjectiveTo investigate the use of DNA amplification by the polymerase chain reaction (PCR) for the detection of Mycobacterium tuberculosis directly in human respiratory specimens.MethodsThe PCR assay employed was the Amplicor M. tuberculosis Test (Roche Diagnostics, Switzerland), which uses the 16S rDNA as the target template. Nine hundred and sixty samples from 741 patients in two clinical microbiology laboratories in Norway and Sweden were processed by routine culture analysis and PCR.ResultsOf the 56 specimens containing cultivatable M. tuberculosis, 49 (87.5%) were detected by PCR. Among the 904 culture-negative specimens, 897 samples were negative also by PCR and seven (0.8%) were positive by PCR. In comparison with culture, the sensitivity, specificity, and positive and negative predictive values of PCR were 91.7%, 99.6%, 94.2% and 99.4% for laboratory 1 and 80.0%, 98.7%, 76.2% and 99.0% for laboratory 2, respectively. For both laboratories combined the values were 87.5%, 99.2%, 87.5% and 99.2%.ConclusionsThese results indicate that multiple (two or three) respiratory samples from each patient should be tested, to allow sufficient accuracy in detecting M. tuberculosis in the specimens. Still, the labor-intensive format of this test necessitates strong clinical indications and patient prioritization to provide a service feasible within the current limits of routine laboratories