The Euro Adoption Debate Revisited: The Czech Case
AbstractAlthough price stability has been achieved in the euro area, the first ten years of the euro have not brought the expected long-term output growth benefits. The Czech Republic – an economy that has achieved price stability without the euro – should then reframe the debate about euro area membership in traditional terms of the exchange rate regime choice, focusing on macroeconomic volatilities in the two regimes. Our experiments show that inflation volatility in the Czech Republic is likely to increase following euro area accession. At the same time, euro area membership is not likely to fundamentally change the volatility of consumption growth. Using past developments, the size of the exchange rate shocks identified relative to the rest of the shocks is simply not high enough to rationalize the abandonment of the flexible exchange rate and independent monetary policy in favor of the fixed exchange rate regime.
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Bibliographic InfoArticle provided by Charles University Prague, Faculty of Social Sciences in its journal Finance a uver - Czech Journal of Economics and Finance.
Volume (Year): 60 (2010)
Issue (Month): 3 (August)
euro area; exchange rate regime choice; exchange rate shocks;
Find related papers by JEL classification:
- E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
- E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
- E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
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