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Is there a third way to EMU for the EU accession countries?

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  • Bofinger, Peter
  • Wollmershauser, Timo

Abstract

The actual mainstream view of academics emphasizes the so-called \"two-corner solution\" with either completely fixed or independently floating exchange rates. We will argue in this paper that the requirements for fixed rates are rather too restrictive to be successful. On the other hand, the advantage of an independent float is only valid for small open economies under the assumption of exchange rate movements closely related to movements in the fundamentals. We suggest as a \"third way\", a strategy of flexible exchange rate targeting where central banks simultaneously manage interest rates and exchange rates in a way that guarantees both the achievement of domestic macroeconomic objectives and an equilibrium on the international financial markets.

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Bibliographic Info

Article provided by Elsevier in its journal Economic Systems.

Volume (Year): 25 (2001)
Issue (Month): 3 (September)
Pages: 253-274

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Handle: RePEc:eee:ecosys:v:25:y:2001:i:3:p:253-274

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References

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  1. Maurice Obstfeld & Kenneth Rogoff, 1995. "The Mirage of Fixed Exchange Rates," Journal of Economic Perspectives, American Economic Association, vol. 9(4), pages 73-96, Fall.
  2. Laurence Ball, 1998. "Policy Rules for Open Economies," RBA Research Discussion Papers rdp9806, Reserve Bank of Australia.
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  5. Begg, David, 1998. "Pegging Out: Lessons from the Czech Exchange Rate Crisis," CEPR Discussion Papers 1956, C.E.P.R. Discussion Papers.
  6. Carmen M. Reinhart, 2000. "Mirage of Floating Exchange Rates," American Economic Review, American Economic Association, vol. 90(2), pages 65-70, May.
  7. Gerlach, Stefan & Smets, Frank, 2000. "MCIs and monetary policy," European Economic Review, Elsevier, vol. 44(9), pages 1677-1700, October.
  8. Jeffrey A. Frankel, 1999. "No Single Currency Regime is Right for All Countries or At All Times," NBER Working Papers 7338, National Bureau of Economic Research, Inc.
  9. Isard,Peter, 1995. "Exchange Rate Economics," Cambridge Books, Cambridge University Press, number 9780521460477, April.
  10. Isard,Peter, 1995. "Exchange Rate Economics," Cambridge Books, Cambridge University Press, number 9780521466004, April.
  11. Flood, Robert P & Rose, Andrew K, 1994. "Fixes: Of the Forward Discount Puzzle," CEPR Discussion Papers 1090, C.E.P.R. Discussion Papers.
  12. Eika, K.H. & Ericsson, N.R. & Nymoen, R., 1996. "Hazards in Implementing a Monetary Conditions Index," Memorandum 32/1996, Oslo University, Department of Economics.
  13. Reinhart, Carmen, 2000. "The mirage of floating exchange rates," MPRA Paper 13736, University Library of Munich, Germany.
  14. Flood, Robert P. & Rose, Andrew K., 1995. "Fixing exchange rates A virtual quest for fundamentals," Journal of Monetary Economics, Elsevier, vol. 36(1), pages 3-37, August.
  15. International Monetary Fund, 2000. "Exchange Rate Regimes in Selected Advanced Transition Economies," IMF Policy Discussion Papers 00/3, International Monetary Fund.
  16. David Mayes & Matti Virén, 2000. "The exchange rate and monetary conditions in the Euro area," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 136(2), pages 199-231, June.
  17. Bofinger, Peter, 2000. "A framework for stabilizing the euro/yen/dollar triplet," The North American Journal of Economics and Finance, Elsevier, vol. 11(2), pages 137-151, December.
  18. Szapary, Gyorgy & Jakab, Zoltan M., 1998. "Exchange Rate Policy in Transition Economies: The Case of Hungary," Journal of Comparative Economics, Elsevier, vol. 26(4), pages 691-717, December.
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Citations

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Cited by:
  1. Lucjan T Orlowski, 2005. "Monetary Convergence And Risk Premiums In The EU Candidate Countries," Macroeconomics 0501037, EconWPA.
  2. Golinelli, Roberto & Rovelli, Riccardo, 2005. "Monetary policy transmission, interest rate rules and inflation targeting in three transition countries," Journal of Banking & Finance, Elsevier, vol. 29(1), pages 183-201, January.
  3. Lucjan Orlowski & Krzyzstof Rybinski, 2005. "Implications of ERM2 for Poland’s Monetary Policy," William Davidson Institute Working Papers Series wp802, William Davidson Institute at the University of Michigan.
  4. Orlowski, Lucjan T., 2005. "Monetary convergence of the EU accession countries to the eurozone: A theoretical framework and policy implications," Journal of Banking & Finance, Elsevier, vol. 29(1), pages 203-225, January.
  5. Kocenda, Evzen & Valachy, Juraj, 2006. "Exchange rate volatility and regime change: A Visegrad comparison," Journal of Comparative Economics, Elsevier, vol. 34(4), pages 727-753, December.
  6. Lucjan T. Orlowski, 2005. "Monetary Policy Adjustments on the Final Passage towards the Euro," CASE Network Studies and Analyses 0294, CASE-Center for Social and Economic Research.
  7. Bruno Merlevede & Joseph Plasmans & Bas van Aarle, 2003. "A Small Macroeconomic Model of the EU-Accession Countries," Open Economies Review, Springer, vol. 14(3), pages 221-250, July.
  8. Lucjan T Orlowski, 2005. "Money Rules For The Eurozone Candidate Countries," Macroeconomics 0501033, EconWPA.
  9. Orlowski, Lucjan T., 2004. "Money rules for monetary convergence to the euro," Journal of Policy Modeling, Elsevier, vol. 26(7), pages 817-837, October.
  10. R. Golinelli & R. Rovelli, 2001. "Interest Rate Rules and Inflation Targeting in Three Transition Countries," Working Papers 429, Dipartimento Scienze Economiche, Universita' di Bologna.
  11. Orlowski, Lucjan T., 2004. "Exchange rate risk and convergence to the Euro," ZEI Working Papers B 25-2004, ZEI - Center for European Integration Studies, University of Bonn.
  12. Frensch, Richard, 2001. "Some perspectives on currency relations between EMU and Central and East European EU accession countries," Economic Systems, Elsevier, vol. 25(3), pages 175-181, September.
  13. Lúcio Vinhas de Souza & Elisabeth Ledrut, 2002. "Alternative Paths Towards EMU: Lessons from an Expanded Mundell-Fleming Model for the Accession Countries," Kiel Working Papers 1132, Kiel Institute for the World Economy.
  14. Crespo-Cuaresma, Jesus & Gnan, Ernest & Ritzberger-Grunwald, Doris, 2004. "Using pre-EMU money market rates to assess monetary policy in the euro area," Economic Modelling, Elsevier, vol. 21(6), pages 1003-1014, December.
  15. Sergio Rossi, 2004. "Monetary integration strategies and perspectives of new EU countries," International Review of Applied Economics, Taylor & Francis Journals, vol. 18(4), pages 443-469.

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