The Euro as an International Currency: explaining puzzling first evidence from the foreign exchange markets

This paper presents evidence that the bid-ask spreads in euro rates increased relative to the corresponding bid-ask spreads in the German mark (DM) prior to the creation of the currency union. This comes with a decrease in transaction volume in the euro rates relative to the previous DM rates. The starkest example is the DM(euro)/yen rate in which the spread has risen by almost two-thirds while the volume decreased by more than one third. This outcome is surprising because the common currency concentrated market liquidity in fewer external euro rates and higher volume tends to be associated with lower spreads. We propose a microstructure explanation based on a change in the information environment of the FX market. The elimination of many cross currency pairs increased the market transparency for order flow imbalances in the dealership market. It is argued that higher market transparency adversely affects the inventory risk sharing efficiency of the dealership market and induces the observed euro spread increase and transaction volume shortfall.

Economic Stability and Economic Governance in the Euro Area:What the European Crisis Can Teach on the Limits of Economic Integration

The recent European economic crisis has dramatically exposed the failures of
the various institutional mechanisms in place to maintain economic stability
in Europe, and has unveiled the difficulty in achieving international coordination
on fiscal and financial stability policies. Drawing on the European
experience, this article analyzes the concept of economic stability in international
law and highlights the peculiar problems connected to its maintenance
or promotion. First, we demonstrate that policies that safeguard and
protect economic stability are largely regulated and managed at the national
level, due to their inextricable relationship with the exercise of national political
power. Until recently, more limited levels of pan-European integration
did not make the coordination of economic stability policies seem necessary.
However, a much deeper level of economic integration makes it very difficult
to tackle an international economic crisis through national responses. If EU
Member states wish to maintain and deepen economic integration, they
must accept an erosion of sovereignty over their economic stability policies.
This will not only deprive states of a fundamental anchor of political power,
but also create a challenge for the maintenance of democratic control over
economic policies. Second, this article argues that soft law approaches are
likely ineffective in enforcing the regulatory disciplines required to ensure
economic stability.

Simulation of the Unsteady Gas Flow through a Three-way Automotive Catalyst

This paper describes a model of a 1.8-litre four-cylinder four-stroke gasoline engine fitted with a close-coupled three-way catalyst (TWC). Designed to meet EURO 3 emissions standards, the engine includes some advanced emission control features in addition to the TWC, namely: variable valve timing (VVT), swirl control plates, and exhaust gas recirculation (EGR). Gas flow is treated as one-dimensional (1D) and unsteady in the engine ducting and in the catalyst. Reflection and transmission of pressure waves at the boundaries of the catalyst monolith are modelled. In-cylinder combustion is represented by a two-zone burn model with dissociation and reaction kinetics. A single Wiebe analysis of measured in-cylinder pressure data is used to determine the mass fraction burned as a function of crank angle (CA) at each engine speed. Measured data from steady-state dynamometer tests are presented for operation at wide open throttle (WOT) over a range of engine speeds. These results include CA-resolved traces of pressure at various locations throughout the engine together with cycle-averaged traces of gas composition entering the catalyst as indicated by a fast-response emissions analyser. Simulated engine performance and pressure wave action throughout the engine are well validated by the measured data.

'The Aftermath of the Annan Plan Referendums' Cross-Voting Moderation for Cyprus

This article examines recent developments in the Cyprus negotiations and suggests a number of changes to the proposed electoral system. Specifically, cross-voting and other electoral methods that encourage coalition-building across ethnic communities might add significantly to the functionality of the Annan Plan. Combined with other innovative mechanisms already in the plan, cross-voting could force political parties to seriously take into account the interests and concerns of the two Cypriot communities, an element that is currently missing from both the Turkish Cypriot (TC) and Greek Cypriot (GC) political systems. Special conditions on the island, as well as the way most political parties operated in the critical pre-April 2004 referendum period, suggest the need for this amendment. Although this study respects the consociational logic of the Annan Plan, it supplements consociationalism with elements that foster integration and inter-dependence between the two communities and their voters. The article also reviews the postreferendum developments in Cyprus which might have worrisome future implications, not only for its two communities, but also for EU enlargement in general. Cyprus both holds one of the keys to Turkey's entrance into the EU and is a litmus test for the Euro-Atlantic nexus and its capacity to pacify and integrate ethnically divided societies in Europe and elsewhere.

Benchmark Status in Fixed-Income Asset Markets

What is a benchmark bond? We provide a formal theoretical treatment of this concept that relates endogenously determined benchmark status to the location of price discovery and we derive its implications. We describe a rich but little used econometric technique for identifying the benchmark that is congruent with our theoretical framework. We apply this in the context of the US corporate bond market and to the natural experiment that occurred when benchmark status was contested in the European sovereign bond markets after the introduction of the Euro. We show that France provides the benchmark at most maturities in the Euro-denominated sovereign bond market and that IBM provides the benchmark in the 10 year maturity in the US corporate bond market.