The Maastricht Convergence Criteria and Optimal Monetary Policy for the EMU Accession Countries.

The EMU accession countries are obliged to fulfill the Maastricht convergence criteria prior to entering the EMU. This paper uses a DSGE model of a two-sector small open economy, to address the following question: How do the Maastricht convergence criteria modify optimal monetary policy in an economy facing domestic and external shocks? First, we derive the micro founded loss function that represents the objective function of the optimal monetary policy not constrained to satisfy the criteria. We find that the optimal monetary policy should not only target inflation rates in the domestic sectors and aggregate output fluctuations but also domestic and international terms of trade. Second, we show how the loss function changes when the monetary policy is constrained to satisfy the Maastricht criteria. The loss function of such a constrained policy is characterized by additional elements penalizing fluctuations of the CPI inflation rate, the nominal interest rate and the nominal exchange rate around the new targets which are potentially different from the steady state of the unconstrained optimal monetary policy. Under the chosen parameterization, the unconstrained optimal monetary policy violates two criteria: concerning the CPI inflation rate and the nominal interest rate. The constrained optimal policy results in targeting the CPI inflation rate and the nominal interest rate that are 0.7% lower (in annual terms) than the CPI inflation rate and the nominal interest rate in the countries taken as a reference. The welfare costs associated with these constraints need to be offset against credibility gains and other benefits related to the compliance with the Maastricht criteria that are not modelled. JEL Classification: F41, E52, E58, E61EMU accession countries, Maastricht convergence criteria, optimal monetary policy

Numerically determined transport laws for fingering ("thermohaline") convection in astrophysics

We present the first three-dimensional simulations of fingering convection performed in a parameter regime close to the one relevant for astrophysics, and reveal the existence of simple asymptotic scaling laws for turbulent heat and compositional transport. These laws can straightforwardly be extrapolated to the true astrophysical regime. Our investigation also indicates that thermocompositional "staircases," a key consequence of fingering convection in the ocean, cannot form spontaneously in the fingering regime in stellar interiors. Our proposed empirically-determined transport laws thus provide simple prescriptions for mixing by fingering convection in a variety of astrophysical situations, and should, from here on, be used preferentially over older and less accurate parameterizations. They also establish that fingering convection does not provide sufficient extra mixing to explain observed chemical abundances in RGB stars.Comment: Submitted to ApJ Letters on October 29th. 15 pages, 4 figures. See Garaud 2010 for companion pape

Epstein-Zin preferences and their use in macro-finance models: implications for optimal monetary policy

Epstein-Zin preferences have attracted significant attention within the macro-finance literature based on DSGE models as they allow to substantially increase risk aversion, and consequently generate non-trivial risk premia, without compromising the ability of standard models to achieve satisfactory macroeconomic data coherence. Such appealing features certainly hold for structural modelling frameworks where monetary policy is set according to Taylor-type rules or seeks to minimize an ad hoc loss function under commitment. However, Epstein-Zin preferences may have significant quantitative implications for both asset pricing and macroeconomic allocation under a welfare-based monetary policy conduct. Against this background, the paper focuses on the impact of such preferences on the Ramsey approach to monetary policy within a medium-scale model based on Smets and Wouters (2007) including a wide range of nominal and real frictions that have proven to be relevant for quantitative business cycle analysis. After setting an empirical benchmark that generates a mean value of 100 bp for the ten-year term premium, we show that Epstein-Zin preferences significantly affect the macroeconomic outcome when optimal policy is considered. The level and the dynamic pattern of risk premia are also markedly altered. We show that the effect of Epstein-Zin preferences is extremely sensitive to the presence of real rigidities in the form of quasi-kinked demands. We also analyse how this effect can be linked to a combined e¤ect of capital accumulation and wage rigidities. JEL Classification: E44, E52, E61, G12macroeconometric equivalence, non time-separable preferences, optimal monetary policy, term premium

Assessing the benefits of international portfolio diversification in bonds and stocks.

This paper considers a stylized asset pricing model where the returns from exchange rates, stocks and bonds are linked by basic risk-arbitrage relationships. Employing GMM estimation and monthly data for 18 economies and the US (treated as the domestic country), we identify through a simple test the countries whose assets strongly comove with US assets and the countries whose assets might other larger diversification benefits. We also show that the strengthening of the comovement of returns across countries is neither a gradual process nor a global phenomenon, reinforcing the case for international diversification. However, our results suggest that fund managers are better other constructing portfolios selecting assets from a subset of countries than relying on either fully inter-nationally diversified or purely domestic portfolios. JEL Classification: F31, G10asset pricing, Exchange Rates, international parity conditions, market integration, stochastic discount factor

REPEATED GAMES WITH PROBABILISTIC HORIZON

Repeated games with probabilistic horizon are defined as those games where players have a common probability structure over the length of the game's repetition, T. In particular, for each t, they assign a probability pt to the event that "the game ends in period t". In this framework we analyze Generalized Prisoners' Dilemma games in both finite stage and differentiable stage games. Our construction shows that it is possible to reach cooperative equilibria under some conditions on the distribution of the discrete random variable T even if the expected length of the game is finite. More precisely, we completely characterize the existence of sub-game perfect cooperative equilibria in finite stage games by the (first order) convergence speed: the behavior in the limit of the ratio between the ending probabilities of two consecutive periods. Cooperation in differentiable stage games is determined by the second order convergence speed, which gives a finer analysis of the probability convergence process when the first convergence speed is zero.Leptokurtic distributions are defined as those distributions for which the (first order) convergence speed is zero and they preclude cooperation in finite stage games with probabilistic horizon. However, this negative result is obtained in differential stage games only for a subset of these distributions.repeated games, probabilistic horizon, cooperation

Consistent matter couplings for Plebanski gravity

We develop a scheme for the minimal coupling of all standard types of tensor and spinor field matter to Plebanski gravity. This theory is a geometric reformulation of vacuum general relativity in terms of two-form frames and connection one-forms, and provides a covariant basis for various quantization approaches. Using the spinor formalism we prove the consistency of the newly proposed matter coupling by demonstrating the full equivalence of Plebanski gravity plus matter to Einstein--Cartan gravity. As a byproduct we also show the consistency of some previous suggestions for matter actions.Comment: 20 page

Dust Destruction Rates and Lifetimes in the Magellanic Clouds

The nature, composition, abundance, and size distribution of dust in galaxies is determined by the rate at which it is created in the different stellar sources and destroyed by interstellar shocks. Because of their extensive wavelength coverage, proximity, and nearly face-on geometry, the Magellanic Clouds (MCs) provide a unique opportunity to study these processes in great detail. In this paper we use the complete sample of supernova remnants (SNRs) in the MCs to calculate the lifetime and destruction efficiencies of silicate and carbon dust in these galaxies. We find dust lifetimes of 22 +- 13 Myr (30 +- 17 Myr) for silicate (carbon) grains in the LMC, and 54 +- 32 Myr (72 +- 43 Myr) for silicate (carbon) grains in the SMC. The significantly shorter lifetimes in the MCs, as compared to the Milky Way, are explained as the combined effect of their lower total dust mass, and the fact that the dust-destroying isolated SNe in the MCs seem to be preferentially occurring in regions with higher than average dust-to-gas (D2G) mass ratios. We also calculate the supernova rate and the current star formation rate in the MCs, and use them to derive maximum dust injection rates by asymptotic giant branch stars and core collapse supernovae. We find that the injection rates are an order of magnitude lower than the dust destruction rates by the SNRs. This supports the conclusion that, unless the dust destruction rates have been considerably overestimated, most of the dust must be reconstituted from surviving grains in dense molecular clouds. More generally, we also discuss the dependence of the dust destruction rate on the local D2G mass ratio, the ambient gas density and metallicity, as well as the application of our results to other galaxies and dust evolution models.Comment: 15 pages, 8 figures, 5 tables, accepted to Ap