Self-fulfilling Currency Crises and Central Bank Independence

Article Abstract:

We develop a model of a fixed exchange rate peg arrangement derived from the Barro-Gordon model of rules versus discretion. It is shown that the fixed peg is vulnerable to self-fulfilling currency crises in which the unemployment rate increases, the credibility of the rule decreases, but, paradoxically, the reputation of the policy-maker improves. Delegating monetary policy to an independent central banker does not prevent this type of crisis from arising, and can even make it more costly. Keywords: Currency crisis; self-fulfilling speculation; sunspots; central bank independence; unemployment; European Monetary System JEL Classification: F3; F4

Europe, DEPOSITORY INSTITUTIONS, Other Depository Credit Intermediation, Money Creating Institutions NEC, Banking industry, Prices and rates, Banks (Finance), Influence, Foreign exchange rates, Monetary policy

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Would a Tobin tax have saved the EMS?

Article Abstract:

A Tobin tax would be beneficial, as it improves the credibility of the peg by easing the foreign exchange rate constraint and makes it less costly for the government to remain in the fixed exchange rate system. A target zone model wherein an optimizing government faces a trade-off between its foreign exchange and its domestic objectives is used to support the claim that a small tax on foreign exchange transactions would help stabilize the European Monetary System. Using data on the French franc in 1991-93, it is shown that a 0.1% Tobin tax would have a considerable stabilizing effect.

Tax Law, Public Finance Activities, Taxation

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An exposition on the nature of the wage curve

Article Abstract:

Generally, it is believed that a rise in unemployment depresses wages, but this neoclassical view can be supplemented by notions of status, which can help explain variations to accepted theory. Status in this case is applied to jobs, with some deemed prestigious, and other carrying social stigma. A rise in wage curve locally may occur, and this rise could be attributed to the effects of employees' perceptions of the different status of a range of jobs, which demonstrates that the concept of status is worthy of further investigation.

Labor organizations, Research, Analysis, Wages, Wages and salaries, Social status, Occupational prestige

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