The Exchange Rate Policy of the Euro: A Matter of Size?
AbstractThis paper analyses how country size affects exchange rate policy and volatility. A hump-shaped relation between exchange rate variability and the size of countries is generated in the theoretical model: exchange rate variability increases with country size for small countries, but then decreases for large countries. The paper finds that this theoretical prediction holds well for bilateral exchange rates of the OECD countries for the period 1980â95 as well as for a subsample of European exchange rates with respect to the dollar. The results suggest that dollar/euro volatility should be lower than the present dollar/Deutsche Mark volatility, but that the decrease may depend significatively on the size and composition of EMU.
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Bibliographic InfoArticle provided by Elsevier in its journal Journal of the Japanese and International Economies.
Volume (Year): 12 (1998)
Issue (Month): 4 (December)
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Web page: http://www.elsevier.com/locate/inca/622903
Other versions of this item:
- Martin, Philippe, 1997. "The Exchange Rate Policy of the Euro: A Matter of Size?," CEPR Discussion Papers, C.E.P.R. Discussion Papers 1646, C.E.P.R. Discussion Papers.
- Philippe Martin, 1997. "The Exchange Rate Policy of the Euro: a Matter of Size?," Working Papers, CEPII research center 1997-06, CEPII research center.
- F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
- F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
- F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission
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