Independent Central Banks: Low inflation at no cost?: A model with fiscal policy

In this article we extend the rational partisan model of Alesina and Gatti (1995) to include a second policy, fiscal policy, besides monetary policy. It is shown that, with this extension, the politically induced variance of output is not always eliminated nor reduced by delegating monetary policy to an independent and conservative central bank. Further, in flation and output stabilisation will be affected by the degree of conservativeness of the central bank and by the probability of the less in flation averse party gaining power. Keywords: rational partisan theory; fiscal policy; independent central bank JEL Classi fication: E58, E63.

The Conservativeness of the Central Bank when Institutional Quality is Poor

We propose an extension of Alesina and Tabellini 's model (1987) to include corruption, which is understood as the presence of weak institutions collecting revenue through formal tax channels. This paper analyses how conservative should an independent central bank be when the institutional quality is poor. When there are no political distortions, we show that the central bank has to be more conservative than the government, except with complete corruption. In this particular case, the central bank should be as conservative as the government. Further, we obtain that the relationship between the optimal relative degree of conservativeness of the central bank and the degree of corruption is affected by supply shocks. Concretely, when these shocks are not important, the central bank should be less conservative if the degree of corruption increases. However, this result may not hold when the shocks are relevant. JEL classi fication: D6, D73, E52, E58, E62, E63. Keywords: Central Bank Conservativeness; Corruption; Fiscal Policy; Monetary Policy; Seigniorage.

Emergence and development of a financial cluster: the evolution of Andorra’s banking deposits in the long-term, 1931-2007

This paper explores the origins of Andorra’s financial cluster. It shows that the free movement of currency, the protection of infant industry, and geographical concentration lie at the foundation of the cluster’s competitive advantage. Drawing on a new set of data, the paper also provides for the first time an estimate of the total deposits held by Andorra’s banks between 1931 and 2007. Based on this new information, the paper reaches the conclusion that the development of the cluster went through four distinct phases in which large companies, acting as leaders, played an important role in enhancing the cluster’s business capabilities.

The Effects of Corruption and Seigniorage on Growth and Inflation

In the last two decades, cases of corruption have been unveiled in different countries, raising public awareness and reinforcing a trend in which society expects more from their leaders. Our objective in this paper is to examine the effects of corruption and seigniorage on inflation and growth rates. The model used in this article is an extension of the model used by Huang and Wei (2006). We find interesting results and one of them is that, under some conditions, corruption has a positive impact on the growth rate. JEL classification : D73, E52, E58, E62. Keywords : Corruption; Fiscal Policy; Growth; Monetary Policy; Seigniorage.

Real unit labour costs in Eurozone countries: drivers and clusters

We examine the trajectories of the real unit labour costs (RULCs) in a selection of Eurozone economies. Strong asymmetries in the convergence process of the RULCs and its components —real wages, capital intensity, and technology— are uncovered through decomposition and cluster analyses. In the last three decades, the PIIGS (Portugal, Ireland, Italy, Greece, and Spain) succeeded in reducing their RULCs by more than their northern partners. With the exception of Ireland, however, technological progress was weak; it was through capital intensification that periphery economies gained efficiency and competitiveness. Cluster heterogeneity, and lack of robustness in cluster composition, is a reflection of the difficulties in achieving real convergence and, by extension, nominal convergence. We conclude by outlining technology as the key convergence factor, and call for a renewed attention to real convergence indicators to strengthen the process of European integration.