Index

Africa 3, 110, 115 Aoki average modelS, 6 Austria 70, 115

Baker, James 123 balance of payments 84-5, 90, 93, 94, 95,

101, 102 Balladur, Edouard 132-3 Bank of Canada 75n Bank of England 64, 85n, 107, 150 Bank of France 66, 92, 131 Bank of Italy 159 Basle Accord 78, 114 Belgium 90, 131

debt68,69, 72-3,105,106 inflation 106, 132

bimetallism 82, 107, 110, 111 bonds

government 71-2,73, 84, 95, 105 market 5, 8, 22, 95 prices5,6-15,21-3,31,33

Brazil 124 Bretton Woods Agreement 82-3, 110, 114,

124, 125, 157 breakdown of 102, 113, 136, 158 USA and 107-8, 141

Britain 90, 107, 110, 142, 155 and EMU 64, 118, 138 convergence problems 60, 62--6 debt 69, 106 exchange rates 64, 84, 85n, 102,

103 inflation 62, 64, 105, 106, 114-15 interest rates 64, 65, 86, 88, 130,

133, 136, 145 leaves ERM 62-3, 130-1, 132,

133-4, 145 monetary policy 85n

budget deficit 8, 17,20-2,23-4, 33,93-4, 139, 143, 144

Bundesbank 66, 67, 77, 116, 118, 130, 131-2, 133, 134, 135

Canada 75n, 124 capital

accumulation 164-5, 173 controls 65, 71-2, 76 flows 62, 63,64-5,74, 76-7,94, 132,

138, 142, 145 formation 164 human 163-4, 168-9, 174, 175, 176 markets 88, 90, 103, 140 movements 59, 61, 88, 95, 131,

137, 140-1, 157 physicall63, 174, 175, 176

central banks and Eurodollar market 90,91-3 and European common currency

95, 103, 116, 125 and exchange rates 35, 59, 77,

84, 120, 132, 134 function of 151--6 government control of 68, 71, 72, 75, 76 monetary policy and 77-8, 151--60 origin of 149-51 see also specific banks

Chile 65 China 89 Cold War 117 common European currency 59--60, 129,

131, 145 and common monetary standard 76-8 and international monetary system

179

118-26 economic case for 82-95 fiscal constraints 60, 67-76 leadership and dominance in 106-18 national debt overhang 67-76 political case for 96-106 role of the dollar 89-100, 101, 102, 103

180 Index

common monetary standard 59-60, 63-7, 76-8

competition 18, 21, 78, 91, 131 credit 95, 107, 151-3, 157

expansion 77-8, 152, 154-5 current account

two-country model 15-33

debt 16-21,25,27,32,33,43,121-2 see also national debt; public debt; specific countries

Delors Report 103-4, 114 demand 7, 8, 12, 13, 27, 161-2 Denmark 69, 106, 131, 132 dollar, the

and international monetary system 118-26

fixed rate dollar standard 59, 66, 77, 81, 102, 122

role in EMU 89-100, 101, 102, 103, 114

Smithsonian system I 02, I 08, 119-21, 123

East Germany 5, 24, 130, 132, 136 Eastern Europe 11-12,82, 115, 117, 118,

125-6, 135-6 ECU 103, 104, 115-16, 126, 143 EFfA 135-6 employment 16, 156, 157-60, 162,

166, !69-71, 175, 176 Eurodollar 90-5, 113, 157-8 EUROPA 83, 115-18 European Central Bank (ECB) 68, 72, 73,

103, 112-13, 116, 145 European Commission 112 European Community

admission criteria I 04-6 debt 69, 73, 106 fiscal policy 37-8, 43, 47, 54-5 monetary policy 95, 104-5 sustainability 38-55 trade balance 49, 50

European Council 102 European Monetary and Coopemtion Fund

(EMCF) 103, 125 European Monetary Institute (EMI) I 03

European Monetary System (EMS) accomplishments and failures

129-31 collapse of ERM 131-4, 145 costs and benefits of 134-7 establishment of I 02-3 future of 141-4 Germany and 60, 66, 102-3,

108-9, Ill, 140 international capital movements 140-1 policy coordination 60, 139-40, 145 target zones 35, 137-9, 142, 144

European Monetary Union 81-2 and international monetary system

118-26 case for 82-95 leadership and dominance in

106-18 politics of 95-1 06 role of the dollar 89-100, 10 I,

102, 103, 114 European Monetary Unit of Account

(EMUA) 125 European Payments Union (EPU) 82 European System of Central Banks

(ESCB) 104, 114, 116, 118 European Union (EU) 60, 77, 129,

135-6, 138-9, 145 exchange rate

fixed 59-68, 83, 84-6, 102, 103, 104, 112, 113, 119, 122, 124, 125, 136, 137-8, 139, 145

flexible 81, 83, 84, 87-8, I 02, 121-2, 136, 137-8

floating6!,85n,93, 113,119, 121, 143, 144

nominal 6, 8, 15, 25-33, 77 overshooting 4, 5, 6, 121, 136,

137, 142 real5,8, 15-25,27,2q two-country model 15-33 see also exchange mte mechanism; specific countries

exchange rate mechanism (ERM) 38, 43, 47,55,63,64,65,66, 73,103,105, 114

collapse of 60, 131-4, 145

exchange rate model (Dornbusch) 4, 25 external sustainability 38, 42-3, 47-54, 55

financial markets 5, 6--19, 34--5, 59 Finland 70 fiscal constraints 60, 67-76 fiscal expansion 5, 6, 10-11, 12-13, 31-2 fiscal policy 60-1, 63, 112, 138, 140, 143

EC 37-8, 43, 47, 54--5 two-country model20-5, 31-3 world model 5-7, 10-14

fixed rate dollar standard 59, 66, 77, 81, 102, 122

foreign exchange markets 63, 66, 138, 142,157

France 90, 102, 119 and bimetallism 107, 110, Ill and EMS 138, 142 and ERM 132-3 and European currency Ill, 113,

115, 118 banks 92 debt43n,44--7,69, 106 exchange rate 63, 88 exports 51-4 external sustainability 47, 50 inflation 65, 106, 115, 132, 133, 138 interest rate 66, 86, 130-1, 133, 136 trade balance 48, 50 unemployment 66

G7 countries 123, 124, 140 German reunification 5, 11-12, 22,

23-5,33,66,109,115,117,133 Germany 50, 77, 90, 142, 155

and EMS 60, 66, 102-3, 108-9, Ill, 140

and European currency 113, 114, 115-18

bond markets 5, 22 budget deficit 23-4 debt 44--7, 69, 106 exchange rate 73, 88 exports 50-4 external sustainability 49, 50 inflation 65, 66, 67, 106, 109,

115, 130, 136, 138

Index

interest rates 5, 6, 24, 50, 65, 66, 86, 109, 130-4

monetary policy 60, 77, 109, 139 trade balance 47, 48, 49 trade surplus 50, 54, 55, 143 unemployment 139

181

Giscard d'Estaing, President 102-3, 114 gold exchange standard 111-12, 122 government

bonds71-2, 73,84,95,105 solvency 38-42

Great Depression !54 Greece 68, 69, 105, 106, 131 growth

export-led 161, 172-5 Harrod-Domarmodels 162, 165-71,

173, 175, 176 neoclassical framework 172-5, 176 trade and 161-3 trade-led models 163-5

Harrod-Domarmodels 162, 165-71, 173, 175, 176

IMF 3, 102, 110, 123, 125, 139, 140 India 89, 124 inflation 7-8, 14, 33, 68, 71, 94, 105, 113,

121-2, 139-40, 143-4 in optimum currency area 60, 61, 62-6 wartime 81, 119 see also specific countries

inflation tax 68, 71 , 73 intertemporal budget constraint 38-40,

42-3, 167-9, 176 interest rates 5, 31, 59, 77-8

nominal6, 8, 19, 26, 33, 63, 105 overshooting 5, 6 real5, 8, 16, 17, 19, 22, 23, 26,

33, 121 two-country modell6, 19, 22,

23,25-6,33 world model 6--15 see also specific countries

international gold standard 59, 77, 81, 82, 89, 92, 107, 110-11, 122

investment 7, II, 13, 16, 18, 23, 24, 160, 163, 165-71

182 Index

Iraq 11 Ireland 68, 69, 105, 106, 130, 131, 153 Italy 72, 90, 91, 102, 111, 151, 155

and EMS 135, 138 convergence problems 60, 62-6 debt43--7,68,69, 72-3,105-6,153--4,155 employment 156, 157-60 exchange rates 156-7 exports 51-4 external sustainability 47, 49, 55 inflation 44--5, 47, 55, 105, 106,

113-14, 138 interest rates 72-3, 136, 153, 159 leaves ERM 130-1, 132, 134 monetary policy 156-60 trade balance 47, 49

Japan 89, 90, 124, 131, 139, 140, 142, 143, 144, 155

Kuwait 11

labour mobility 61, 135, 138, 145 liquidity 7, 92, 93, 121, 157 Louvre Accord (1987) 103, 114, 123, 137 Luxembourg 69, 106

Maastricht Agreement (1991) 36, 43, 47, 54-5,59,68,69, 78,82, 104,105, 116, 117

Mexico 124 Mitterand, President 65 monetary policy 5, 6, 60-1,62,67,

84-5,87,91,94,136 and central banks 77-8, 151-60 common59,60,63,66-7, 76-7,103--4,

112, 135, 138, 139--40, 142, 144, 145 role of 156-60 two-country model 25-33 world model 10-11, 15

money-market 7, 8, 25-30, 33, 87, 155-6 money supply 4, 15, 26, 77, 95, 113,

136, 139, 142, 143 moral hazard 73, 104 national debt overhang 60, 68-76 Netherlands 85, 90, ll.S, 131, 132

debt69, 72-3,105,106

inflation 106 interest rates 86

Netherlands Bank 85 Nixon, President 118-19 Norway70

OECD21, 140 oil prices 113, 121 optimum currency areas 60-6,67,83, 87,

135-6

Plaza Accord 114, 122 Ponzi games condition 38-40, 42-3 Portugal 130, 131, 132

debt68,69, 105,106 inflation 105, 106, 132

price dynamics 14, 25,27-30 price level alignment 59, 60, 62, 63,

65,67,68, 77-8,103-4 prices, relative 15, 31 public debt

and admission to EC 104-6 sustainability 37-47, 54-5 see also specific countries

recession 5, 13, 14, 114, 130-1, 132, 134, 136, 145

Russia 89, 124

saving, private 16, 17, 27, 151, 155 Schmidt, Helmut 102-3, 114 SDR 81, 108, Ill, 118, 120, 126 seigniorage 78, 87, 94, 95, 97, 114,

158 silver standard 82 Single European Act (1986) 59, 103 Smithsonian system 102, l 08, Ill,

119-21, 123 solvency 38-42, 43, 55 sovereignty 94, 95, 98-9 Spain 102, 131, 132

convergence problems 60, 62-6 debt 69, 106 devaluation 130 inflation 106, 132

sustainability external 42-3

EC 38, 47-54, 55 public debt 38-43

EC 37,43-7,54-5 Sweden 70, 90, 153 Switzerland 70, 86, 90, 115

target zones 35, 137-9, 142, 144 taxation 40-2, 138 technical progress 161, 163-9, 171-6 Thatcher, Margaret 63-4 trade

balance 8, 17, 43, 47-50 deficit 169, 170, 176 surplus 17, 50, 54, 55, 143, 169,

170--1, 176 trade, international60, 61-2,95, 99

and growth 161-3 export-led 161, 172-5 Harrod-Domar models 162,

165-71, 173, 175, 176 neo-classical framework 172-5, 176 trade-led models 163-5

two-country models 3-5 nominal 5-6, 25-33 real 5-6, 16--25

Index 183

unemployment 61, 62, 66, 95, 130, 131,133,138,139-40,143,158,167

international trade and 161-3 United States of America 13, 72, 131, 142,

155 and international monetary system 66,

89-91,97-102,107-12,114, 118-26, 140

balance of payments 85n, 90, 93, 94, 95, 101, 102

banks91-2, 122,154,157-8 budget deficit 17,20--2, 33, 93-4, 139,

143, 144 debt 20--1, 7 4-6 fiscal policy 5, 138 interest rates 5, 24, 122, 136 interregional adjustment 86, 87-8 labour mobility 135 monetary policy 114, 139, 141

Walters Critique 63-5 West Germany 111 Western Europe 59, 63, 68, 82, 117

see also specific countries World model3-5, 6--15