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Measuring Currency Pressure and Contagion Risks in Countries under Monetary Unions: The Case of Euro

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  • Paolo Canofari
  • Giancarlo Marini
  • Giovanni Piersanti

Abstract

This paper proposes a measure of exchange market pressure for countries operating in hard peg regimes, such as currency unions, currency boards or full dollarization. We use a general model of currency crisis to derive a sustainability index based upon the relationship between the shadow exchange rate and the output gap required to maintain the currency peg. We apply the index to European Union countries in order to assess the sustainability of the euro. Copyright International Atlantic Economic Society 2014

Suggested Citation

  • Paolo Canofari & Giancarlo Marini & Giovanni Piersanti, 2014. "Measuring Currency Pressure and Contagion Risks in Countries under Monetary Unions: The Case of Euro," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 42(4), pages 455-469, December.
    • Handle: RePEc:kap:atlecj:v:42:y:2014:i:4:p:455-469
    DOI: 10.1007/s11293-014-9434-2
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    Cited by:

    1. Canofari, Paolo & Di Bartolomeo, Giovanni, 2017. "Regime switches under policy uncertainty in monetary unions," European Journal of Political Economy, Elsevier, vol. 47(C), pages 124-132.
    2. Paolo Canofari & Giancarlo Marini & Giovanni Piersanti, 2015. "Expectations and systemic risk in EMU government bond spreads," Quantitative Finance, Taylor & Francis Journals, vol. 15(4), pages 711-724, April.

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    More about this item

    Keywords

    Shadow exchange rate; Currency crisis; Exchange market pressure; F30; F31; F32; F41; G01;
    All these keywords.

    JEL classification:

    • F30 - International Economics - - International Finance - - - General
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • G01 - Financial Economics - - General - - - Financial Crises

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