The reading for this course is grouped under four main headings: Inhomogeneities in the Euro Area; the Monetary Strategy of the ECB; fiscal policy in the EMU; financial integration.
The logic is this. We start by studying the degree of homogeneity of the Euro Area. This is a reflection of one of the leading criteria of traditional Optimum Currency Area theory, significant for the smooth functioning of monetary policy in the Euro Area as it is for new entrants (or some of them). Most of the work in this area has concentrated on the synchronization of business cycles, and we follow that lead here. The idea that monetary union might lead to more trade - and that more trade might lead to increased synchronization is dealt with under this heading.
The Monetary Strategy of the ECB combines an analysis of the ECB’s strategic position and the formulation of its strategy with some comment on the record so far. Inevitably there is a tendency to concentrate on the problems - the criticisms that the ECB has been too conservative, that it has been intransparent, and that it has followed an outmoded style of (Bundesbank) policy.
The fiscal policy section is concerned of course mainly with the Stability Pact, the reasons for its failure and its possible reconstruction. But we aim to deal with issues like solvency, fiscal forecast error and the notion of "fiscal dominance versus monetary dominance" as well, both from an analytical and from an empirical point of view.
The last section covers issues of financial integration. If Robert Mundell is regarded as the father of traditional optimum currency area theory, he has recently been discovered as the father of quite a different idea - that monetary union implies financial integration and financial integration permits insurance against risk through the market. Aside from following this debate, in this section we shall try to look at the nuts and bolts of financial integration. This will include looking at the confusion that seems to have been created by the fact the ECB has by design no responsibility for financial stability and supervision.
Evaluation methods
The course will be evaluated by
a combination of a term paper and a 2-hour examination, equal weight being
attached to each component. The term paper should not exceed 5000 words and
should be addressed to a topic that falls within the ambit of the course.
The topic should be discussed with, and approved by me. The deadline for the
submission of the term paper will be announced later. The examination will
be administered at the end of the course.