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Reflecting the diverse and profound changes triggered by the latest wave of economic globalization, this book highlights various governance responses at national, regional and global levels. The topics covered are wide-ranging and include economic history and development, European integration, exchange rate arrangements, industrial and labor economics, international cooperation and multilateralism, and public choice.

The book is divided into three parts: The first part, which contains contributions by Barry Eichengreen and Marc Flandreau, is devoted to economic history. The second part examines open economy macroeconomics with a focus on Europe, including contributions by Jurgen von Hagen and Paul Krugman. The third part presents contributions to international political economy, and related interdisciplinary topics.

This Festschrift is written in honor of Jorge Braga de Macedo, Professor Emeritus of Economics at the Nova School of Business and Economics and a distinguished Portuguese academic whose work has an impressive global reach. The contributions, written by a selection of international authors, deal with his oeuvre covering the wide range of topics broached in this book, as his publication record amply attests.



Economic History


Jorge Braga de Macedo as an Economic Historian: The Transition of the Portuguese Economy from the Authoritarian to the Democratic Period (1960–1979)

Despite not being an economic historian, Jorge Braga de Macedo has delved into economic history, with very favorable results. This is illustrated in the current chapter, which analyzes Braga de Macedo’s contribution to the understanding of the Portuguese economy’s transition from authoritarianism to democracy. To be sure, Braga de Macedo’s analysis has not only enriched our understanding of the transition period itself but also that of the authoritarian and democratic periods. This chapter discusses four of Braga de Macedo’s pioneering articles and shows how these contributed to our current knowledge of three fundamental Portuguese economic issues, namely: economic growth, openness and connection with other European economies between the 1960s and 1980s.
Luciano Amaral

Bagehot for “Followers”: How Did the Bank of Portugal Manage the First Post World War I Crisis?

The lender of last resort (LLR) function is a form of micro-management employed by central banks, usually in cooperation with or under the direction of governments, either to mitigate banking panics, or to prevent them from occurring. This paper considers the employment of the LLR function in Portugal during the early post World War I years. It is based on primary material in the Bank of Portugal’s archive. Using a detailed account of the first banking crisis of the early 1920s, this study shows that the Bank of Portugal did not conform to Bagehot’s archetype and explains why the departure from this model was unavoidable. It concludes that a lack of awareness of his paradigm was not the reason for the policy option of the Bank of Portugal.
Jaime Reis

What is in a Bond? The Value of Portugal or the Financial Origins of the Portuguese Civil War

As bonds left untied make us reflect on the places where we never went, this chapter offers an economic, historical and political meditation on a bond between Portugal and Rothschild that was not tied. By discussing what was not and what might have been, the story offers ways to reflect on what Portugal came to be. On September 27, 1823, the Portuguese Minister of Finance signed a loan contract with B. A. Goldschmidt. I follow this contract and the one with James de Rothschild (which Portugal did not sign) from the date of issue through Goldschmidt’s failure (1826) until Portugal’s default and the eruption of its Civil War in 1828. I conclude that a Rothschild bond might have escaped default, thus avoiding war.
Marc Flandreau

A Thirteenth-Century Fiscal Constitution

The thirteenth century was an era of bold constitutional experiments in Europe. During this age, for the first time in history, fiscal constitutions, i.e., limits on the fiscal prerogatives of the state, emerged. In Portugal, this manifested itself as a monetary constitution that prevented the use of the kings’ minting rights and a hidden tax, namely the 1261 Instrumentum Super Facto Monete, which was presented as a contract. It was a genuine monetary constitution insofar as it had the credible commitment of the state and was enforced by the public, via the Cortes until 1369, when it likely outlived its utility for the markets. The beneficial effects of this constitution in reining potential monetary mischief can be observed in the comparatively low nominal interest rates prevalent in Portuguese capital markets.
António Castro Henriques

Economic History and History of Economics: Complementary Approaches to Portuguese Economic Development

This chapter focuses on how the problems of economic development were addressed by the Portuguese historiography of the late nineteenth and twentieth centuries. The ensuing discussion benefits from the simultaneous consideration of two historiographical domains that complement each other: economic history and the history of economics. On the one hand, there are the authors and texts of economic history that seek to describe the facts and circumstances related to the functioning and dynamics of economic reality, for a given period or succession of periods, in order to establish evolutionary trends. On the other hand, there are the authors and texts of the history of economics that seek to adopt analytical forms (principles and laws) and doctrinal and programmatic frameworks (visions and ideologies) aimed at providing explanatory meaning to the observed economic changes, phenomena and regularities. A true understanding of the important issues pertaining to Portuguese economic development is to be found, however, in the intersection of these distinct but complementary historiographical perspectives.
José Luís Cardoso

US Inflation and the Imbalances of the Bretton Woods System, 1965–1973

This chapter argues that the key deep underlying fundamental for the growing international imbalances leading to the collapse of the Bretton Woods System between 1971 and 1973 was rising US inflation since 1965. It was driven in turn by expansionary fiscal and monetary policies—the elephant in the room. What was kept in the background at the Camp David meeting on August 15, 1971 (when President Richard Nixon closed the US gold window, as well as imposing a ten per cent surcharge on all imports and a ninety-day wage–price freeze), was that US inflation, driven by macro-policies, was the main problem facing the Bretton Woods System, and that for political and doctrinal reasons was not directly addressed. Instead, President Nixon blamed the rest of the world rather than correcting mistaken US policies. In addition, at the urging of Federal Reserve Chairman Arthur F. Burns, Nixon adopted wage and price controls to mask the inflation, hence punting the problem into the future. I argue the case that the pursuit of sound monetary and fiscal policies could have avoided much of the turmoil in the waning years of Bretton Woods. Moreover, I point out some of the similarities between the imbalances of the 1960s and 1970s—especially fiscal and the use of tariff protection as a strategic tool, as well as some differences—relatively stable monetary policy and floating exchange rates.
Michael D. Bordo

The Gold Standard and the Euro: Conjoined Twins or Distant Relations?

I provide a structured comparison of the nineteenth-century classical gold standard and the Euro, basing my analysis heavily on recent research. Both similarities and differences are evident in the historical record. Both regimes were vaunted as engines of convergence, but in both cases convergence was incomplete. Both were seen as delivering fiscal discipline, but in both cases such discipline was erratic. But whereas the gold standard was always a contingent monetary regime, there is nothing contingent about Euro-area membership. Finally, the gold standard operated in a simpler political setting, one in which mass participation in electoral politics was the exception to the rule.
Barry Eichengreen

European Macroeconomics


A Macro-stabilization Function for the Euro Area

This chapter explores an institutional challenge still facing the European Monetary Union (EMU) after the Eurozone sovereign debt crisis. One of these is the absence of a centralized macroeconomic stabilization function to deal with possible asymmetrical shocks, in addition to the common monetary policy. Indeed, the EMU remains highly vulnerable to shocks without some fiscal risk sharing. To be sure, a centralized fiscal stabilization implies a common budget and, hence, some risk sharing. However, it also makes future economic crises less likely and relieves the pressure on the common monetary policy, among other advantages. While the European Union (EU) technical debate recognizes this desideratum, the same cannot be said for the political debate across EU Member States. However, history has taught us that EU leaders act decisively when confronted with a crisis. Thus, the next recession may see them accept and establish a macro-stabilization function for the Euro area.
Aníbal Cavaco Silva

Toward a Sustainable Eurozone

We argue that the various proposals aimed at stabilizing the Eurozone using financial engineering do not eliminate the inherent instability of the sovereign bond markets in a monetary union. During crises, this instability becomes systemic and no amount of financial engineering can stabilize an otherwise unstable system. The real stabilization of the Eurozone entails two mechanisms. The first is the willingness of the European Central Bank (ECB) to provide liquidity in the Eurozone sovereign bond markets during times of crisis. The ECB has set up its Outright Monetary Transactions (OMT) program to do this. However, OMT is loaded with austerity conditions, which will be counterproductive when used during recessions, which is when crises generally occur. That is why a second mechanism is necessary, which consists in creating a Eurozone budget.
Paul De Grauwe, Yuemei Ji

Fiscal Governance in the Euro Area: What Kind of Union?

Political debates over the fiscal framework of the European Monetary Union have focused on two issues, dealing with asymmetric shocks and maintaining a high degree of fiscal discipline. After reviewing the development of the EMU fiscal framework, we argue that transfers dealing with asymmetric shocks are less important than commonly argued. Fiscal discipline is the critical issue. Three stark alternatives exist, a fiscal union, a debt union with decentralized authority, and a monetary union with fiscal freedom and a sovereign default framework. The debt union is not sustainable. Choosing between fiscal union and fiscal freedom is a decision between collective coercion combined with individual safety, on the one hand, and the ability to choose one’s own best policies combined with individual responsibility, on the other.
Jürgen von Hagen

On the Limits of EU Differentiated Integration: Lessons from the Eurozone Crisis and from Brexit

Variable geometry ought to imply “variably geometry Europe” as variable geometry or differentiated integration in the European Union has reached its limits. Drawing on the lessons of the Eurozone crisis and of Brexit, this chapter argues that (treaty-based) variable geometry or differentiated integration in the core European Union (EU) institutions—especially economic and monetary union (EMU)—is not sustainable. EMU has in the meantime become the (economic and political) core of the Union and of the integration process. It is therefore the Euro area, and no longer the internal market, on which one would have to anchor EU integration. From an EU point of view, it does not make sense to accommodate member states’ preferences that are too divergent from the Union’s by means of more institutional flexibility at the Euro areas’ expense and the objective of ever-closer union. This would mean transforming the EU into a mere intergovernmental organization without a common currency (and for that matter without political ambitions). Therefore, all EU countries should be in all main EU (treaty-based) institutions, most notably EMU and Schengen, or leave the Union and opt for membership of the European Economic Area only or for a lesser preferential trade agreement like a free trade agreement.
Annette Bongardt, Francisco Torres

The Peculiar First Semester of 2012

In 2011, Portugal was subjected to one of the most stringent austerity packages implemented during the Eurozone crisis, a package known as the troika program. The interpretation of the effects of this program led to a vivid confrontation between two opposing views. A Keynesian view stressed the contractionary effect on the economy, well documented in the deterioration of basic macroindicators. We believe, however, that the austerity package might have simultaneously provided an important and less often acknowledged ingredient to the economy’s recovery, namely an increase in investors’ confidence as expressed by a sustained decline of the yields in financial markets. To some extent, this opposing German view also accounts for the Portuguese macroeconomic adjustment.
António S. Pinto Barbosa, Luís Catela Nunes

The Krugman–Macedo Diagram Revisited

We revisit the diagram developed by Krugman and Macedo (The economic consequences of the April 25th revolution, Krugman and Braga de Macedo, Economia III:435–483, 1979) to study the adjustment path of output and real wage gaps in a small open economy. Using time series data, we estimate sequences of real exchange rates that are consistent with internal and external balance for the Portuguese economy and use these estimates to plot its evolution during 1971–2017. Following a period of prolonged appreciation, we find that the real exchange rate fell below its equilibrium level during the 2011–2015 adjustment phase, which was driven by both declining nominal wages and improvements in terms of trade.
Miguel Lebre de Freitas, Miguel Faria-e-Castro

Notes on a Peripheral Economy

This chapter provides some brief, informal notes about Portugal’s modern economic history since the 1974 Revolution, as it looks to an outsider observer. Not to be too coy about it, Portugal has done better than many feared but not quite as well as many hoped. There is, however, an asymmetry between the good news and the bad news. Portugal can claim much of the credit for the gratifying resilience of its late commitment to democracy, avoiding economic catastrophe and generally responsible policies. The disappointments, on the other hand, have had a lot to do with outside forces, such as the euro’s structural flaws and, since the 1980s, the underlying forces causing trouble for peripheral regions in all advanced economies. Indeed, Portugal achieved only limited convergence on wealthier European nations and is still vulnerable to macroeconomic crisis. Relative to the grim prospects in 1975, however, Portugal has to be considered a major success story.
Paul Krugman

International Political Economy


Tax, Climate Change, and Sustainable Development: Global Problems, Global Solutions?

This chapter examines three areas where multilateral cooperation is necessary: climate change, international corporate taxation, and sustainable development. Progress in addressing challenges in all these three areas through global cooperation is crucial. We need to find effective ways to limit the rise in global temperature. Carbon taxation is one of the most effective means. We also need to find a timely, consensus-based solution to revamp the rules-based international tax system. This will help avert a string of unilateral actions by countries to protect their domestic tax base. Finally, the global community should take stronger efforts to support developing countries in meeting the Sustainable Development Goals.
Vítor Gaspar, David Amaglobeli

International Migration and Social Network Spillovers of Political Norms

International migration flows are shaping world politics in a variety of ways. This chapter summarizes existing evidence on the mechanisms through which these flows affect political attitudes and participation in the countries from where the migrants originate. A comparison is made between the effects of international migration on political institutions in Cape Verde and Mozambique, which both have strong migratory traditions. Emigration from Cape Verde is characterized by relatively high-skilled migration to Portugal and other Organization for Economic Co-operation and Development (OECD) countries, while emigration from Mozambique is mostly driven by unskilled labor flows into South Africa. The results that we describe show that international migration substantially increases political participation in both settings. The demand for political accountability and electoral participation substantially increases after being exposed to better democratic political norms and knowledge about electoral processes. This effect grows with citizens’ social proximity, which is characterized as opportunities for personal interaction. Overall, we provide evidence that both South–North as well as South–South international migration strengthen democracy in the poorest countries.
Cátia Batista, Julia Seither, Pedro C. Vicente

Regulated Early Closures of Coal-Fired Power Plants and Tougher Energy Taxation on Electricity Production: Synergy or Rivalry?

This chapter examines the economic and environmental effects of the interaction between regulated early closure of coal-fired power plants and new energy taxation rules on such plants using a dynamic general equilibrium model of the Portuguese economy. Simulation results show that regulated early closures lead to meaningful emission reductions but induce significant detrimental macroeconomic and distributional effects. Upon application of the new energy taxation rules, no significant environmental gains or macroeconomic and distributional losses are observed beyond those already induced by the forced closures. The public sector also seems to benefit from additional tax revenues. If the coal-fired power plants operators react by unilaterally decommissioning their installations, however, the adverse macroeconomic and distributional effects will substantially deteriorate even though the environmental ones improve. Moreover, the adverse budgetary effects will be substantially larger. Overall, we find no synergies between the two policies and, in fact, the opposite is potentially true.
Alfredo Marvão Pereira, Rui Manuel Pereira

Measuring What Social Partners Do About Wages Over the Business Cycle

Collective bargaining (CB) conducted by trade unions and employer associations (the social partners) plays a key role in the formation of wages in many countries. This paper investigates the potential interactions of CB with the macroeconomy by estimating the business cycle sensitivity of the many thousands of CB minimum wages. Drawing on matched worker and CB data covering all employees in Portugal, we find that, over the 1982–2017 period, CB real wages are no more than 0.7% lower when the unemployment rate increases by one percentage point. This is less than half the equivalent entry-level effect (1.8) documented in (Martins et al., Am Econ J Macroecon 4:36–55, 2012). Moreover, much of the sensitivity of CB wages is driven by the high-inflation period until 1992, with effects as large as 5.2. Overall, our findings of limited CB real wage cyclicality suggest that, in Portugal (and possibly also in other countries in Southern Europe), the social partners may not yet have fully adjusted to the macroeconomic regime of Eurozone membership.
Pedro S. Martins

Selling the View

As an attempt to critically engage with the contemporary visual experience, this chapter explores the horizontal, vertical, and virtual viewpoints. Its main purpose is to question the virtual realm as a place where technology allows for various visual experiences including new, digital, and oblique perspectives on both horizontality and verticality.
Jorge De La Barre

A Constitutional Theory of Intergenerational Equity

Taking cue from the honoree’s lifelong interest in constitutional issues, interdisciplinary research, and intergenerational equity, this chapter presents and assesses the case for constitutional precommitments as means to correct the short-termist bias of democracy. It discusses two different forms that rationality-securing precommitment can take—mechanical and fiduciary—and argues that the former (rules) cannot accommodate reasonable pluralism with respect to intergenerational justice, hence jeopardizing constitutional legitimacy. As to the latter (principles), while it may be able to reconcile rationality and pluralism, the standard method for its enforcement—judicial review—is unfit for the task within the realm of intergenerational issues. That calls for a different type of constitutional arrangement, and therefore a renewal of interest in institutional imagination and design.
Gonçalo de Almeida Ribeiro

International Cooperation in the Age of Populism

For much of the post-World War Two period, the world seemed on a path of ever-greater collaboration among the principal economic centers. In the past decade, economic and political trends have called this upward tendency into question. Within both advanced industrial and developing nations, there has been an upsurge in “populist” sentiment with an economically nationalistic tenor and an explicit hostility to “globalist” approaches to economic cooperation. What is the future of international economic cooperation in a world in which domestic political pressures appear to be pushing the major powers apart, rather than together?
Jeffry Frieden


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