Our chapter reviews positive and normative issues in the interaction between monetary and fiscal policy, with an emphasis on how views on policy coordination have changed over the last 25 five years. On the positive side, noncooperative games between a government and its central bank have given way to an examination of the requirements on monetary and fiscal policy to provide a stable nominal anchor. On the normative side, cooperative solutions have given way to Ramsey allocations. The central theme throughout is on the optimal degree of price stability and on the coordination of monetary and fiscal policy that is necessary to achieve it.

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The Interaction Between Monetary and Fiscal Policy

The primary objective of this paper is to produce a framework that could be used to construct a historical data base of zero-coupon and forward yield curves estimated from Government of Canada securities' prices.

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Yield Curve Modelling at the Bank of Canada

The paper investigates whether the East African Community, comprising of Kenya, Tanzania, and Uganda, constitutes an optimum currency area or not. The East African Community has been revived, and one of the long-term objectives of the Community is to have a common currency. The paper employs the Generalised Purchasing Power Parity method, and various criteria suggested by the theory of Optimum Currency Areas to investigate the optimality of the Community as a currency area. While the various indices that we calculated based on the theory of Optimum Currency Areas gave mixed verdicts, the Generalised Purchasing Power Parity (G-PPP) method supports the formation of a currency union in the region.Using the G-PPP method, we were able to establish cointegration between the real exchange rates in East Africa for the period 1981 to 1998, and even for the period 1990 to 1998. This finding suggests that the three countries tend to be affected by similar shocks.

https://gupea.ub.gu.se/bitstream/2077/2675/1/gunwpe0041.pdf

Is East Africa an Optimum Currency Area

L’OCDE a ete creee par une Convention signee a Paris, le 14 decembre 1960; et qui est entree en vigueur le 30 septembre 1961. Elle succedait a l’Organisation Europeenne de Cooperation Economique (OECE), comprenant des pays europeens seulement. Celle-ci avait ete etablie en 1948, essentiellement en vue de mettre sur pied un programme de cooperation a entreprendre pour assurer le relevement des pays europeens des effets de la Deuxieme Guerre mondiale, grâce a l’aide americaine fournie dans le cadre du Plan Marshall.

Organisation de Cooperation et de Developpement Economiques

Les auteurs examinent les consequences des changements de comportement des agents economiques pour l'application de regles monetaires simples reposant sur la prevision de l'inflation, du genre de celles actuellement utilisees par deux banques centrales ayant etabli des cibles en matiere d'inflation. Ils analysent trois types de changement de comportement causes par l'evolution des politiques monetaire […]

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Monetary Rules When Economic Behaviour Changes

The existence of a market for Real Return Bonds in Canada provides a direct tool with which to measure market expectations of inflation by comparing the yields on these bonds with those on conventional Government of Canada long-term bonds. However, there are other factors besides inflation expectations that may affect the yield differential. After reviewing these factors, the authors note that they can lead to a potentially large bias in the level of inflation expectations. The changes in the differential over time may, nonetheless, be a good indicator of movements in long-run inflation expectations. Based on this measure, expectations of long-run inflation have declined since late 1994.

Inflation expectations and Real Return Bonds

The European Union, which currently consists of 15 states, occupies an important place among the advanced economies. The final stage of the European economic and monetary union (EMU) is scheduled to begin in January 1999 with the adoption of a common currency called the "euro." A decision on which countries will participate in the euro area in 1999 will be made next spring based in part on the achievement of the economic criteria laid out in the Maastricht Treaty. In this article, the authors, after a brief discussion of the historical background, cast some light on the institutional aspects of the EMU, on the formulation and implementation of economic policy, as well as on the internal and external effects of EMU completion. For Canada, the direct implications of the shift to the euro appear to be relatively modest, at least in the short run.

European economic and monetary union: Background and implications

The resurgence of sizable current account imbalances in the major economies in recent years, particularly the tripling of the U.S. deficit, has led to renewed academic and public discussions about their sustainability. Jacob’s main objective is to show that current account balances are simply the outcome of various relative structural and cyclical forces between trading partners. He reviews the factors behind the changes in the current account positions of the three largest industrial economies (the United States, Japan, and the euro area). Two strong determinants shaping the current account balances are the faster increase in U.S. productivity compared with that of other major economies and, more recently, the loosening in the U.S. fiscal stance. Jacob also reviews a range of outside assessments from such sources as the Organisation for Economic Co-operation and Development and the International Monetary Fund, as well as the academic literature, to determine the possible risks to macroeconomic and financial stability.

Jocelyn Jacob

Papers

Inflation expectations and Real Return Bonds

European economic and monetary union: Background and implications

Current Account Imbalances: Some Key Issues for the Major Industrialized Economies