Publication Type: Conference Paper/Unpublished Manuscript
Review Method: Peer Reviewed
Abstract: Why would a government ever choose to give up control over monetary policy? Fixing exchange rates has anti-inflationary benefits. However, I demonstrate that no government will opt for fixed exchange rates on the basis of that anti-inflationary benefit. In my model, any anti-inflationary effect is purely an externality of the government's preference to reduce nominal exchange rate volatility and secure a favorable real exchange rate. While some domestic actors may favor the anti-inflationary effects of a fixed exchange rate, the government will always prefer to set its own monetary policy. I argue that the government's choice of monetary policy and exchange rate reflects the policy preferences of powerful sectoral and class actors in the domestic economy. This paper examines the government's choice of exchange rate and monetary policy, and how this choice is affected by the constraint on policymaking that arises from international capital mobility.

Publication Type: Conference Paper/Unpublished Manuscript
Review Method: Peer Reviewed
Abstract: This paper assesses the relationship between money, collective identity, and European integration. The recent move of the European Union (EU) toward a common currency ? the euro ? seems to contradict the conventional ?one nation/one money? assumption about the association between states, territory and money creation. The paper argues that ? if viewed from a broad macro-historical perspective ? the process of European monetary unification is not as exceptional and unique as it is often made out to be. I argue that money is, first and foremost, a social relation. This definition implies that collective identity plays some role in the creation and transformation of monetary systems. However, the key identity aspect at stake is not an affective relationship between citizens and country, but rather a relationship of trust. During the process of modernization, trust has become rather abstract and institutionalized. To support a modern relationship of trust, identity does not have to rest on deep affective feelings of belonging. Diffuse identity, based on utilitarian or contractual factors and as part of evolving hybrid identity structures, is sufficient.

Publication Type: Conference Paper/Unpublished Manuscript
Review Method: Peer Reviewed
Abstract: This paper argues that the level of monetary flexibility a government enjoys does not only depend on the implemented monetary institutions such as exchange rate arrangements and central bank independence but also on the economic and financial relationships with key currency areas. The dichotomous view of the open economy trilemma seems not to answer the question how flexible governments are in the decision upon domestic monetary policy. I develop a formal theoretical framework explaining the degree of monetary independence in open economies under flexible exchange rate regimes by trading relations and financial integration. The model suggests that a) higher import shares from the key currency area increase the imported inflation when monetary authorities try to offset and exogenous shock by cutting back the interest rate while the base country does not encounter a similar shock, and b) the more cross border assets of a country are denominated in the base currency the higher the exchange rate effects of interest rate differences to the interest rate of the base country. The presented empirical evidence largely supports the theoretical predictions. This holds especially true for countries reporting the Deutsche Mark or the Euro as reference currency.

Publication Type: Proceeding

Publication Type: Conference Paper/Unpublished Manuscript
Review Method: Peer Reviewed
Abstract: Structural characteristics of political systems affect the quality of information (or transparency) of the policymaking process. I argue that transparency is especially important in respect to monetary policymaking since the public is hard pressed to determine whether an increase in the price level is due to political opportunism or some exogenous economic force. My claim is that political systems that are more transparent also tend to have more flexible and efficient monetary institutions (floating exchange rates, discretionary monetary policy). Political systems that are less transparent, on the other hand, tend to give rise to rigid and costly monetary rules (fixed exchange rates, inflation targets). I test the argument across a sample of democratic countries that vary in terms of political system transparency.