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In the lead article, George Alogoskoufis, Lucas Papademos and Richard
Portes discuss recent research on external constraints on macroeconomic
policy. This Bulletin also reports a conference on North-South
macroeconomic interactions and lunchtime meetings on aid to the Soviet
Union, the implications of `1992' for the European Community's external
trade and labour markets, and the next steps in economic transformation
of Eastern Europe. George Alogoskoufis, Lucas Papademos and Richard Portes present an overview of the issues raised by a new CEPR conference volume on the European experience of external constraints on macroeconomic policy-making. The papers in this book draw on historical and international evidence to shed light on the implications of various exchange rate regimes for policy- making. North-South Macroeconomic Interactions Participants at a Seoul joint workshop with the Brookings Institution, the OECD and the Korea Development Institute in May presented the results of modelling macroeconomic linkages between OECD and non-OECD economies, focusing in particular on recent developments in the Dynamic Asian Economies. Lunchtime Meetings Speakers at a July lunchtime panel discussion debated the merits and dangers of the `Grand Bargain': the provision of large-scale Western aid conditional on the reform of the Soviet economy. At a Brussels joint lunchtime meeting with the Institut d'Etudes Européennes, Victor Norman assessed the effects of EFTA countries' closer integration with the European Community. L Alan Winters argued that foreign competition has had greater effects on the European Community' trade patterns than the single-market programme. Jorge Braga de Macedo presented an overview of the challenges now facing the economies of Central and Eastern Europe seeking to ensure that their reforms endure. Dennis Snower argued that the European Community's proposed Social Charter will protect `insiders' at the expense of `outsiders' and therefore hurt precisely those workers it is intended to help. Discussion Papers Thorvaldur Gylfason and Assar Lindbeck argue that the strategic interplay of government and unions may tend to create unemployment and inflation simultaneously. Andrew Rose and Lars Svensson develop a target zone exchange rate model with a fluctuating risk of devaluation which predicts realignments within the ERM better than models based on interest rate differentials alone. Martin Klein applies cooperative game theory to determine the conditions under which countries will jointly agree to fix their relative exchange rates. In an empirical study of the EMS, Axel Weber finds that the frequent stabilizations and realignments of its early period have recently vanished, which he attributes to the convergence of member countries' inflation to low `German' levels. Paul De Grauwe and Wim Vanhaverbeke assess the implications of a European common currency for the output and employment effects of asymmetric shocks on countries and regions. Jacques Mélitz argues that the European Commission's most recent proposals for monetary union overstress the role of restrictions on fiscal autonomy, while critically neglecting the Eurofed's role as lender of last resort David Newbery argues that Hungary's tax and reward system must become less progressive if its economic reform is to unleash repressed forces for greater efficiency. Richard Portes argues that corporate control, financial restructuring, convertibility and exchange rate policy must be tackled quickly to dispel the current mood of pessimism in Eastern Europe. Peter Neary argues that governments seeking to promote exports in oligopolistic markets should target their assistance on those firms that are most competitive at the outset. Shantayanan Devarajan and Dani Rodrik argue that the costs to the CFA Zone countries of fixed exchange rates have outweighed their benefits. Frederick van der Ploeg finds that when national central bankers cannot precommit, the case for a common European Central Bank strengthens with nominal government debt and inflation aversion. Alberto Alesina and Vittorio Grilli assess the implications of the Draft Statute of the European Central Bank for the political economy of European monetary policy. Marco Pagano and Ailsa Röell investigate the relationship between the London market for Italian equities with the Milan stock exchange. Alberto Alesina and Dani Rodrik argue that democratic countries with uneven wealth distributions grow relatively slowly, while no strong relationship exists for non- democratic regimes. Vittorio Grilli and Nouriel Roubini maintain that monetary injections into the banking system lead to real exchange rate depreciations, while direct transfers to households lead to appreciations. Neil Rankin finds differences in the effects on the relative risk premiums on domestic and foreign bonds of policy uncertainty deriving from the money supply and from public spending. Carlo Carraro and Domenico Siniscalco argue non- cooperative emission control may achieve effective protection against pollutants whose interdependence is high, and countries with strong environmental preferences should form small coalitions to `buy' other countries instead of seeking to secure comprehensive international agreements. Michael Moore finds that financial innovation may lead to a discontinuity in money demand leading to a Keynesian under-employment equilibrium. |
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