Covid‐19 outbreak and stocks return on the West African Economic and Monetary Union's stock market: An empirical analysis of the relationship through the event study approach

This study uses the Wilcoxon's signed ranks test to identify the effect of the Covid‐19 outbreak on the stocks returns of companies listed on the West African Economic and Monetary Union's (WAEMU) stock market by considering two event dates (January 23, 2020 and March 2, 2020). To account for the temporal volatility in the event approach, the study resort to a GARCH model. Empirical findings suggest that January 23, 2020 event (first case of death due to Covid‐19 in China) have had a minor impact on the WAEMU stock market while the event on March 2, 2020 (first case of Covid‐19 in the WAEMU) strongly affected the financial market. This negative impact is much more pronounced for the distribution sectors (−34.16%). Robustness analysis reveals that the main information leading to disruption on the market is the weekly death cases and not the confirmed cases. In addition, government anti‐Covid‐19 measures such as social distancing and governance positively affect the stock return whereas lockdown, public health measures and movement restrictions contribute to a decline in the stock's price.

Financial stability and monetary policy of the Central Bank of West African Countries: a Markov-Switching model

Purpose This paper aims to examine the response of monetary policy to financial instability in the West African Economic and Monetary Union.Design/methodology/approach Through annual aggregated data from 1970 to 2019, the empirical strategy is based on the Markov regime-switching model with fixed probabilities.Findings The results revealed that the monetary policy of the central bank of the West African Economic and Monetary Union is characterized by two regimes (calm and distress) with respect to the trend of financial stability. The authors also found that the occurrence of the calm regime was likely greater than that of the distress regime. In addition, the calm regime is longer than the distress regime. The authors finally revealed that the central bank reacts to financial instability risk by increasing its short-term interest rate when financial instability reaches a threshold.Research limitations/implications The limitation of this study is the unavailability of monthly or quarterly data that are more suitable for the methodological approach adopted.Originality/value This study is the one to estimate the response of the Central Bank of West African Countries to financial stress using a novel approach based on the Markov-Switching regression.

Fiscal Stabilization in the United States: Lessons for Monetary Unions

The debate about the use of fiscal instruments for macroeconomic stabilization has regained prominence in the aftermath of the Great Recession, and its relevance has suddenly increased further, after the recent Covid-19 shock. The analysis of fiscal stabilization in the United States, a monetary union equipped with a common fiscal capacity, has often informed the literature on the European EMU and could serve as a reference for its possible future reforms. This paper expands that literature in three ways: first, by measuring stabilization not only as inter-state risk-sharing of asymmetric shocks, but also as intertemporal stabilization of common shocks;second, by doing this for specific items in the US federal budget, both on the revenue and on the expenditure side;and third, by also measuring the impact of the federal system of unemployment benefits and of its extension as a response to the Great Recession. Corporate and personal income tax, on the revenue side, and social security benefits and federal grants, on the spending side, are the most effective items. The US federal system of unemployment insurance provides great stabilization in the event of a large shock, in particular when enhanced by the discretionary program of extended benefits. These findings imply that a proper design of the budget can maximize its stabilization effect, when it helps bridging the gap between higher mobility of capital and lower mobility of labor, by collecting revenues based on the income of the most mobile factor (corporate income tax) and providing support to the income of the least mobile factor (social security).

Designing the fiscal-monetary nexus: policy options for the EU

In recent decades, and in particular since the shift towards independent central banks, there has been no explicit coordination of fiscal and monetary policy. In the Eurozone, this lack of coordination represents an important flaw, especially since the Eurozone is not an optimal currency area. Complementing monetary union with a transfer union represents one possible solution. This paper argues that the negative impact of post-2008 and post-Covid-19 unconventional monetary policy on income inequalities provides a second reason to coordinate fiscal and monetary policy. Among various institutional arrangements to implement such coordination, the paper defends the idea that the European Central Bank should be sensitive to distributive considerations when formulating its monetary policy. Such an arrangement would help both to contain the distributive side-effects of monetary policy and to at least partially remedy the flaw at the heart of the Eurozone as long as an outright transfer union remains unfeasible.

Responsibility Versus Solidarity? Key Issues for the EMU Reform

The 2008 economic recession, followed by the sovereign debt crisis, made it clear that the original design of EMU was unsustainable. Together with the most urgent adjustments, the need for a profound reform of the system has been on the agenda for more than a decade. Despite significant steps being taken, no comprehensive reform has yet been delivered. In this paper, the background and the focus of the EMU reform will be reviewed. The research argues that it is necessary to create a better balance between the common shock absorption instruments (i.e., risk sharing) and to give a greater role for markets as incentives for fiscal and financial discipline (i.e., risk reduction). A new synthesis of the two dominant narratives could form the conceptual core of EMU reform. In this way, the need to create a sustainable system of resilience (the ability to respond and adapt) can be the decisive factor. At the heart of the EMU reform there can be deeper economic and financial union, resilient structures, the increase of risk sharing and the reduction of inherited risk.

Die Europäische Union in der Corona-Krise

ZusammenfassungDie Corona-Krise hat alle Mitgliedstaaten der Europäischen Union getroffen — allerdings einige früher und härter als andere. Nun soll ein immens großer Rettungsschirm aufgespannt werden, über dessen Finanzierung, Konditionen und mögliche Auflagen die EU-Mitglieder noch streiten. Auch die Ebenen, auf der die Maßnahmen organisiert werden sollen, sind noch nicht ausbalanciert. Welche Bedeutung kommt dabei der nationalen, welche der supranationalen Ebene zu? Geht es vor allem um die Europäische Währungsunion oder um die gesamte EU? Solidarisches Verhalten gebietet nicht allein die europäische Idee, sondern auch die ökonomische Notwendigkeit, da die Mitgliedstaaten über Lieferketten stark miteinander verflochten sind.Alternate :The Coronavirus crisis has affected al of thel member states in the European Union — but some earlier and harder than others. A large rescue package is to be set up, the financing, conditions and possible requirements of which are still being disputed by EU members. The levels at which the measures are to be organised have not yet been established either. What is the importance of the national level or the supranational leves? Is it primarily about the European Monetary Union or about the EU as a whole? Solidarity is not only required by the European idea, but also by economic necessity, since the member states are strongly connected by their supply chains.

IMPACT OF MACROECONOMIC INDICATORS THE ON PUBLIC DEBT DYNAMICS

The paper examines the determinants of public debt in EU Member States, including the United Kingdom, from 2005 to 2019. The research's aim is to estimate the correlation of each macroeconomic indicator, as current account balance, real effective exchange rate, export market share, nominal unit labour cost index, unemployment rate to public debt, using a multiple regression on panel data, the contribution that the United Kingdom has had in the whole mechanism of the Union. Also, among the objectives is the capture of some proposals for a better limitation of the increasing levels of the member countries' debts, taking into account the impact of Covid 19, which at this date cannot be estimated accurately. The results, in this sense, seem to indicate an acceleration of the level of debt that tends to increase in most member countries to limit and stabilize some severely affected economies. The main contribution of the paper is providing a viable solution for recovery and constant economic growth in order to reduce the public debt at the level of the member countries of the European Union.

Resilience in Focus. Certain Mechanisms of the Deepening of the Economic and Monetary Union

The economic resilience - the flexibility of the economy and also the capability of resistance to shocks - is a central category of European reform processes. It contains proactive and reactive dimension, as well as the necessity of adaptation to the new circumstances. The study examines the basic dimensions of resilience vulnerability factors, shock absorption and the ability to recover, and finds that the efficiency of the interactions and synergy of the deep integration system is determined by the interconnected mechanisms of convergence and resilience. Approaching resilience may show a new direction to national economic policies. With the increase of resilience of certain member states, the structural reforms at national level could decrease (reduce) the expense of the anti-cyclical (national fiscal or common monetary) policies in stabilizing of the Eurozone’s economies.

TOWARD A CLOSER UNION? SOME IMPLICATIONS OF THE EU RECOVERY PLAN

The tragic social and economic disruption of the COVID-19 pandemic has forced countries to take what they considered to be the proper steps toward improving their economies. In the case of the EU, its recovery package has sparked debates around impending fiscal federalization and the future of economics, sovereignty and democracy in Europe. This paper looks at discussions surrounding the package's long- term effects especially as regards a fiscal union (and how such a union might affect EU politics and democracy), and, finally, how such a move might translate into seismic cultural turmoil. In addition, the current EU move toward a potential closer union is often contrasted with the formation and functioning of the US, from which lessons might be gleaned and, hopefully, heeded. Despite the otherwise encouraging prospects touted by politicians and MMT advocates, the long- term effects of inflation in the wake of the relief package could be serious and their prospective emergence should not be ignored. Moreover, if one thinks, as Sowell might say, 'beyond stage one ', the effects of fiscal federalization of the EU might well have effects which trickle down to the very foundations of cultural and democratic interactions.

National central banks in EMU: time for revision?

The national central banks of the euro area are crucial to the monetary policy of the euro. Their Governors sit (on a personal title) on the Governing Council of the ECB, and they execute most of the monetary policies. Whereas the recent ruling by the German Constitutional Court on the Public Sector Purchases Program highlighted the uncomfortable role of the German Bundesbank in between national and EU law, the euro-crisis already showed other legal strains on the position of the national central banks in Economic and Monetary Union. This article argues that EMU empowered national central banks, even when it took away their power to individually set monetary policies for their respective Member States. The euro-crisis then disturbed the balance struck in the construction of the ECB between protecting national interests and effective decision-making, resulting in several legal problems.

Centrifugal forces in a hegemonic environment: the rise of small-state coalitions in the Economic and Monetary Union

A hegemonic power can guarantee the status quo in an international economic system. However, domestic or international changes may unsettle a hegemon’s priorities. In such phases, smaller states benefiting from the existing system may fear that the hegemon will fail to keep the system stable. How do they react if they lose trust in the hegemon’s ability or will to maintain the status quo? This article argues that in such cases, free riding becomes less rewarding. Therefore, smaller states build publicly visible coalitions to ‘voice’ their preferences. Applying this argument to the role of small ‘creditor states’ in the Economic and Monetary Union (EMU), the article draws on original in-depth interviews to analyze the ‘New Hanseatic League’ as a strategy to defend the present euro regime and counterbalance the Franco–German tandem. By elaborating and tracing a fine-grained causal mechanism, the article thus explains the emergence of vocal small-state coalitions in a hegemonic environment.