Fundamentals, International Role of Euro and 'Framing' of Expectations: What are the Determinants of the Dollar/Euro Exchange Rate?

The predictions made by economists of the value of the euro prior to its introduction were essentially based on the expected portfolio adjustment resulting from the role that it might play as an international currency. As a result, most analysts agreed that the euro would be a strong currency, appreciating against the US dollar. The first years of life of the ‘virtual’ euro contradicted such a forecast. Economists therefore abandoned predictions based on the euro as a ‘global’ money and directed their focus almost exclusively towards traditional, ‘fundamentals-based’ explanations. Among these explanations, several authors mentioned the unsatisfactory structural and institutional set up of the EMU. Nevertheless, later on, when the euro started appreciating, a different set of fundamentals had to be isolated in order to account for such behaviour. It is possible to argue, then, that the EMU economic structure and institutions are, or at least are currently perceived as, capable of supporting a strong euro, which plays the role of international money. ‘Framing’ of expectations, however, still keeps driving the behaviour of the exchange rate, so that the same structural and institutional set up may be subject to different evaluations, depending on the particular state of expectations of the international currency markets. Finally, since the available evidence suggests that the euro is starting to play an international role, I argue that the ‘international money’ and the ‘framing’ of expectations approaches explain the behaviour of the dollar/euro exchange rate better than the ‘fundamentals' one.Euro; Dollar; Fundamentals; International currency; Portfolio adjustment

The Belt and Road Initiative: Inclusive Globalization and Poverty Reduction

The Belt and Road Initiative (BRI) aims to increase connectivity between regions and countries that market forces excluded from the previous wave of economic globalization. Foreign direct investment (FDI) can create the conditions for the economic takeoff of least-developed countries (LDCs) and developing countries. Although Chinese FDI has nearly doubled since the launch of the BRI in 2013 compared to 2005–2013, it does not seem to be directed toward BRI member countries more than the non-member countries. One exception is South American BRI member countries, which have significantly increased their FDI inflows from China. This is not the case, however, for West Asian countries, where FDI growth has been lower for BRI countries than for the West Asian countries as a whole, and especially for sub-Saharan BRI countries, for which the amount of FDI has even decreased compared to the 2005–2013 period. The BRI’s slow start and the countries’ gradual entry may explain the delay in seeing the positive results expected from it reflected in the data

Public debt sustainability in a target zone model with heterogeneous agents

Relying on the assumption of perfect information and agent homogeneity, previous interest rate target zone models could well account for situations of government debt stability (‘honeymoon’) or instability (‘divorce’). In those models, however, the transition from one state to another could only occur with a discrete change in the interest rate and thus could not account for the gradual transition from ‘honeymoon’ to ‘divorce’ that occurred in the months leading up to the euro area crisis of 2011–12. The assumption of heterogeneous agents made in this interest rate target zone model, on the other hand, allows that graduality to be represented. Heterogeneous agents are assumed to be characterized by normally distributed beliefs about the maximum sustainable level of the debt-to-GDP ratio. When public debt increases due to an assumed process of stochastic shocks, therefore, the percentage of agents sharing the belief that they have entered a region of instability also increases, thus leading to the gradual transition from ‘honeymoon’ to ‘divorce,’ observed in the euro area crisis of 2011–2012

Public debt monetisation and the credibility of the ECB

What stops public debt being monetised to avoid the pain of prolonged austerity after the pandemic? An obsolete economic theory of ‘credibility’

Central bank intervention, public debt and interest rate target zones

The euro area crisis has been characterized by speculative attacks reflecting the market fear that some high indebted countries could go bankrupt. What is puzzling, however, is that non-euro area countries with an equally large – and in some cases even larger - public debt-to-GDP ratios have not been subject to attacks. Both facts have been explained by observing that euro area countries could not rely on a lender of last resort, so as to make possible the occurrence of self-fulfilling speculative attacks. The model proposed in this article applies the target zones methodology relative to exchange rates, developed in the late 1980s-early 1990s, to the case of interest rates. Its novelty is that it endogenizes the determinants of the credibility of the interest rate target zone and, as a result, of public debt stability: the latter is shown to depend on the liquidity (that can be interpreted as the availability of reserves) that the central bank can create thanks to its role of lender of last resort: full/partial credibility is obtained when reserves are expected to be sufficient/insufficient to absorb completely the excess of supply of bonds resulting from a given demand shock. Moreover, the expected absence of reserves determines the non-credibility of the interest rate target, while the expectation of a public debt increase produces the convex interest rate nonlinearity that characterized the euro area crisis

Economic Inequality and Conflicts: an Overview

Questo articolo ricostruisce i principali punti del dibattito accademico sulla relazione tra disuguaglianza economica e conflitti. Dopo aver chiarito cosa si intende con l'espressione "disuguaglianza economica", l'autore richiama il modo con cui questa viene misurata e riferisce alcuni dati fondamentali in materia di reddito e distribuzione diseguale della ricchezza nei e tra i paesi, su scala globale, offrendo alcune possibili spiegazioni. Viene poi affrontata la questione centrale dell'articolo, ovvero la correlazione tra disuguaglianza economica e conflitti. In particolare, si esamina il possibile nesso tra disuguaglianze economiche nei paesi e conflitti interni, in connessione col ruolo svolto dal capitale sociale che può essere minacciato dalla disuguaglianza economica. In conclusione, l'autore analizza la correlazione tra disuguaglianze tra paesi e conflitti esterni o internazionali, inclusi i conflitti collegati con il fenomeno, oggi particolarmente rilevante, delle migrazioni

Self-Fulfilling and Fundamentals Based Speculative Attacks: A Theoretical Interpretation of the Euro Area Crisis

The recent euro area crisis shows some similarities with the fixed exchange rate crisis that affected the European Monetary System in 1992–93. I argue that the theoretical framework to be used in order to analyze them should also be similar. As a matter of fact, in both cases, the point of view of the government (that compares costs and benefits of its action) should be considered together with the point of view of speculators, who look at the state of the economic fundamentals in order to decide whether to launch an attack or not. This allows to represent and to interpret, among other things, both the initial “honeymoon” years of EMU and the recent euro area crisis

Strategic interactions between monetary and fiscal authorities in a monetary union

In this paper we extend Nordhaus’ (1994) results to an environment which may represent the current European situation, characterised by a single monetary authority and several fiscal bodies. We show that: a) co-operation among national fiscal authorities is welfare improving only if they also co-operate with the central bank; b) when this condition is not satisfied, fiscal rules, as those envisaged in the Maastricht Treaty and in the Stability and Growth Pact, may work as co-ordination devices that improve welfare; c) the relationship between several treasuries and a single central bank makes the fiscal leadership solution collapse to the Nash one, so that, contrary to Nordhaus (1994) and Dixit and Luisa Lambertini (2001), when moving from the Nash to the Stackelberg solution, fiscal discipline no longer obtains. Also in this case we thus argue in favour of fiscal rules in a monetary union.Fiscal and monetary policy co-ordination; monetary union;international fiscal issues

Guerra in Ucraina: dall’analisi delle cause all’impegno per una pace equa e duratura

All’alba del 24 febbraio 2022 le truppe della Federazione Russa hanno invaso l’Ucraina. Il numero dei morti e dei feriti militari e civili, gli oltre 6,2 milioni di profughi ucraini (di cui più di 5,8 in Europa), i pesanti danni subiti da città, villaggi e infrastrutture, i quantitativi di armi già impiegati o pronti all’uso, sono solo alcuni dei dati che fanno di questa guerra una delle più gravi degli ultimi decenni. Il coinvolgimento diretto e indiretto delle principali potenze nucleari del pianeta, la presenza di milizie mercenarie, l’invio e l'uso di armi vietate dalle convenzioni internazionali come le cosiddette bombe a grappolo, il ricorso a droni armati navali e aerei, munizioni all'uranio impoverito, sanzioni, blocchi navali e sabotaggi, ne fanno anche una guerra “ibrida” particolarmente complessa, capace di produrre effetti imprevedibili su larga scala e nel lungo periodo. Tuttavia, dopo una fase di notevole attenzione mediatica, segnata da una forte polarizzazione, il sostanziale stallo delle operazioni militari, l’assenza di trattative di pace e la prospettiva di un prolungamento indefinito del conflitto rischiano di produrre una “normalizzazione della guerra”. In questo quadro, abbiamo invitato il mondo della ricerca a proporre le proprie analisi della guerra in corso, sulla cui base costruire possibili vie per una pace equa e duratura. Gli autori e le autrici che hanno deciso di partecipare a questo numero monografico della rivista hanno offerto preziosi contributi in questa direzione, partendo da prospettive disciplinari e posizionamenti ideologici diversi. Questa introduzione propone un percorso di lettura trasversale ai diversi lavori, così da metterne in luce le diverse risposte offerte ad alcune domande che riteniamo fondamentali: Quali sono i diversi punti di vista sulla guerra in Ucraina ed esiste una via per arrivare a una loro sintesi e ricomposizione? Come è stato raccontato il conflitto armato in Ucraina e che effetti ha avuto tale narrazione sulla comprensione della guerra e sulle prospettive di pacificazione tra i diversi attori coinvolti? Quali argomenti sono stati utilizzati nel dibattito pubblico per giustificare il ricorso alla forza armata? Perché tra i governi occidentali e in parte dell’opinione pubblica si è affermata la convinzione che il principale (se non l’unico) supporto possibile all’Ucraina invasa fosse di natura militare? Quali sono le cause prossime e quali quelle più profonde della guerra in corso? Tenendo conto delle modalità con cui è stata condotta la guerra e dei suoi effetti, oltre che delle sue cause profonde, quali vie d’uscita nonviolente sono praticabili? Confidiamo che i lavori inclusi in questo numero possano contribuire a una migliore comprensione del conflitto in corso, offrendo al contempo valide indicazioni per la sua conclusione diplomatica e per la costruzione di una pace duratura, nel quadro di un equilibrato ordine mondiale

L’helicopter money e la credibilità della Banca centrale europea

Pompeo Della Posta discute l’affermazione secondo la quale monetizzare il debito rischierebbe di minare la credibilità anti-inflazionistica della Banca Centrale Europea sostenendo che non sarebbe questo il caso. Non è possibile, infatti, perdere credibilità attuando una politica, come sarebbe la monetizzazione della spesa, che porterebbe con sé meno rischi e che risulterebbe meno costosa dell’alternativa rappresentata dal ricorso all’indebitamento