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Exchange rate strategies towards the euro-zone for new EU member states with currency boards

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  • Katsimi, Margarita

Abstract

The paper investigates the transition of the new EU countries with a currency board arrangement (CBA) to the euro-zone. The arguments for and against retaining a CBA while participating in the exchange rate mechanism of the EU (ERMII) are discussed. Then, we show in the framework of a signalling model that abandoning a CBA and allowing the exchange rate to fluctuate within the bands of ERMII can signal to markets the sustainability of nominal convergence and, hence, diminish uncertainty in the pre-accession period and increase the probability of being accepted into the euro-zone.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Macroeconomics.

Volume (Year): 30 (2008)
Issue (Month): 3 (September)
Pages: 1043-1063

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Handle: RePEc:eee:jmacro:v:30:y:2008:i:3:p:1043-1063

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Web page: http://www.elsevier.com/locate/inca/622617

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  1. Gregor Irwin, 2004. "Currency boards and currency crises," Oxford Economic Papers, Oxford University Press, vol. 56(1), pages 64-87, January.
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  8. Coles, Melvyn & Philippopoulos, Apostolis, 1997. "Are exchange rate bands better than fixed exchange rates? The imported credibility approach," Journal of International Economics, Elsevier, vol. 43(1-2), pages 133-153, August.
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  13. Katsimi, Margarita, 1999. "Elections and the size of the public sector," European Journal of Political Economy, Elsevier, vol. 15(3), pages 441-462, September.
  14. Jacob De Haan & Helge Berger & Erik Van Fraassen, 2001. "How to Reduce Inflation: An Independent Central Bank or A Currency Board? The Experience of the Baltic Countries," LICOS Discussion Papers 9601, LICOS - Centre for Institutions and Economic Performance, KU Leuven.
  15. De Grauwe, Paul & Dewachter, Hans & Veestraeten, Dirk, 1999. "Price dynamics under stochastic process switching: some extensions and an application to EMU1," Journal of International Money and Finance, Elsevier, vol. 18(2), pages 195-224, February.
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  17. Richard Cantor & Frank Packer, 1996. "Determinants and impact of sovereign credit ratings," Economic Policy Review, Federal Reserve Bank of New York, issue Oct, pages 37-53.
  18. Anne Marie Gulde & Juha Kähkönen & Peter Keller, 2000. "Pros and Cons of Currency Board Arrangements in the Lead-Up to EU Accession and Participation in the Euro Zone," IMF Policy Discussion Papers 00/1, International Monetary Fund.
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