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Keynesian and Austrian Perspectives on Crisis, Shock Adjustment, Exchange Rate Regime and (Long-Term) Growth

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Author Info

  • Mathilde Maurel

    ()

  • Gunther Schnabl

    ()

Abstract

The 2010/11 European debt crisis has revived the discussion concerning the optimal adjustment strategy in the face of asymmetric shocks. This paper approaches the question from a theoretical perspective by confronting exchange rate based adjustment with crisis adjustment via price and wage cuts. Econometric estimations yield a negative impact of exchange rate flexibility/volatility on growth, which is found to be particularly strong for countries with asymmetric business cycles and during recessions. Price flexibility is found to have a positive impact on growth. Based on these findings we support a further enlargement of the European Monetary Union and recommend more exchange rate stability for the rest of the world. Copyright Springer Science+Business Media, LLC 2012

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File URL: http://hdl.handle.net/10.1007/s11079-011-9227-z
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Bibliographic Info

Article provided by Springer in its journal Open Economies Review.

Volume (Year): 23 (2012)
Issue (Month): 5 (November)
Pages: 847-868

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Handle: RePEc:kap:openec:v:23:y:2012:i:5:p:847-868

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Web page: http://www.springerlink.com/link.asp?id=100323

Related research

Keywords: Exchange rate regime; Crisis; Shock adjustment; Theory of optimum currency areas; Mundell; Schumpeter; Hayek; Competitive depreciations; F31; F32;

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References

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  1. Eichengreen, Barry, 2002. "Financial Crises and What to Do About Them," OUP Catalogue, Oxford University Press, number 9780199257447.
  2. Rose, Andrew K, 2003. "A Meta-Analysis of the Effect of Common Currencies on International Trade," CEPR Discussion Papers 4341, C.E.P.R. Discussion Papers.
  3. Fabrizio Coricelli & Mathilde Maurel, 2010. "Growth and crisis in transition : a comparative perspective," Documents de travail du Centre d'Economie de la Sorbonne 10020, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne.
  4. Olivier Jean Blanchard & Lawrence F. Katz, 1992. "Regional Evolutions," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 23(1), pages 1-76.
  5. Aghion, Philippe & Bacchetta, Philippe & Rancière, Romain & Rogoff, Kenneth, 2009. "Exchange rate volatility and productivity growth: The role of financial development," Journal of Monetary Economics, Elsevier, vol. 56(4), pages 494-513, May.
  6. Ronald McKinnon & Gunther Schnabl, 2004. "The East Asian Dollar Standard, Fear of Floating, and Original Sin," Review of Development Economics, Wiley Blackwell, vol. 8(3), pages 331-360, 08.
  7. Roberto Chang, & Linda Kaltani & Norman Loayza, 2006. "Openness Can be Good for Growth: The Role of Policy Complementarities," Working Papers Central Bank of Chile 373, Central Bank of Chile.
  8. Valerie Cerra & Sweta Chaman Saxena & Ugo Panizza, 2009. "International Evidenceon Recovery From Recessions," IMF Working Papers 09/183, International Monetary Fund.
  9. Babetskii, Ian & Boone, Laurence & Maurel, Mathilde, 2002. "Exchange Rate Regimes and Supply Shocks Asymmetry: The Case of the Accession Countries," CEPR Discussion Papers 3408, C.E.P.R. Discussion Papers.
  10. Gunther Schnabl, 2007. "Exchange Rate Volatility and Growth in Emerging Europe and East Asia," CESifo Working Paper Series 2023, CESifo Group Munich.
  11. Valerie Cerra & Sweta Chaman Saxena, 2007. "Growth dynamics: the myth of economic recovery," BIS Working Papers 226, Bank for International Settlements.
  12. Gunther Schnabl & Holger Zemanek, 2011. "Inter-temporal savings, current account trends and asymmetric shocks in a heterogeneous European Monetary Union," Intereconomics: Review of European Economic Policy, Springer, vol. 46(3), pages 153-160, June.
  13. Fidrmuc, Jan, 2004. "Migration and regional adjustment to asymmetric shocks in transition economies," Journal of Comparative Economics, Elsevier, vol. 32(2), pages 230-247, June.
  14. repec:hal:journl:halshs-00469327 is not listed on IDEAS
  15. Harris Dellas & George S.Tavlas, 2009. "An Optimum-Currency-Area Odyssey," Working Papers 102, Bank of Greece.
  16. Gunther Schnabl & Andreas Hoffmann, 2008. "Monetary Policy, Vagabonding Liquidity and Bursting Bubbles in New and Emerging Markets: An Overinvestment View," The World Economy, Wiley Blackwell, vol. 31(9), pages 1226-1252, 09.
  17. Paul De Grauwe & Gunther Schnabl, 2008. "Exchange Rate Stability, Inflation, and Growth in (South) Eastern and Central Europe," Review of Development Economics, Wiley Blackwell, vol. 12(3), pages 530-549, 08.
  18. Fidrmuc, Jan & Maurel, Mathilde, 2004. "Optimum choice of the exchange-rate regime for the accession-candidate countries," Journal of Comparative Economics, Elsevier, vol. 32(2), pages 197-201, June.
  19. Chiara Bentivogli & Patrizio Pagano, 1999. "Regional Disparities and Labour Mobility: the Euro-11 versus the USA," LABOUR, CEIS, vol. 13(3), pages 737-760, 09.
  20. Ronald McKinnon & Gunther Schnabl, 2004. "The Return to Soft Dollar Pegging in East Asia: Mitigating Conflicted Virtue," International Finance, Wiley Blackwell, vol. 7(2), pages 169-201, 07.
  21. Decressin, Jorg & Fatas, Antonio, 1995. "Regional labor market dynamics in Europe," European Economic Review, Elsevier, vol. 39(9), pages 1627-1655, December.
  22. Flood, Robert P. & Garber, Peter M., 1984. "Collapsing exchange-rate regimes : Some linear examples," Journal of International Economics, Elsevier, vol. 17(1-2), pages 1-13, August.
  23. Reinhart, Carmen & Calvo, Guillermo, 2002. "Fear of floating," MPRA Paper 14000, University Library of Munich, Germany.
  24. Arellano, Manuel & Bond, Stephen, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," Review of Economic Studies, Wiley Blackwell, vol. 58(2), pages 277-97, April.
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Citations

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Cited by:
  1. Evžen Kocenda & Mathilde Maurel & Gunther Schnabl, 2012. "Short-Term and Long-Term Growth Effects of Exchange Rate Adjustment," CESifo Working Paper Series 4018, CESifo Group Munich.
  2. Evžen Kočenda & Mathilde Maurel & Gunther Schnabl, 2013. "Short- and Long-term Growth Effects of Exchange Rate Adjustment," Review of International Economics, Wiley Blackwell, vol. 21(1), pages 137-150, 02.
  3. Kristina Spantig, 2013. "Keynesian Dominance in Crisis Therapy," Global Financial Markets Working Paper Series 45-2013, Friedrich-Schiller-University Jena.
  4. Schnabl, Gunther, 2013. "The global move into the zero interest rate and high debt trap," Working Papers 121, University of Leipzig, Faculty of Economics and Management Science.

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