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From Floating to Monetary Union: The Economic Distance between Exchange Rate Regimes

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  • Eduard H. Hochreiter
  • Pierre L. Siklos

Abstract

The successful start of Economic and Monetary Union in Europe has prompted more research into the issue of exchange rate regimes and if there were any lessons to be drawn from the European experiment for other regions in the world. We review the relevant issues from an Optimum Currency Area perspective. The focus on issues relating to the suitability of switching to a common currency based on notions of economic distance and the correlation of aggregate economic shocks. The empirical evidence presented in this paper shows that the cost of monetary union declined substantially in some target countries while it appears to have risen in others. This leads to some interesting policy implications also for the new EU members.

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This chapter was published in:

  • Eduard Hochreiter & Pierre Siklos, 2004. "From Floating to Monetary Union: The Economic Distance between Exchange Rate Regimes," SUERF Studies, SUERF - The European Money and Finance Forum, number 2004/5 edited by Morten Balling.
    This item is provided by SUERF - The European Money and Finance Forum in its series Chapters in SUERF Studies with number 32-1.

    Handle: RePEc:erf:erfssc:32-1

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    1. Andrew K. Rose, 2000. "One money, one market: the effect of common currencies on trade," Economic Policy, CEPR & CES & MSH, vol. 15(30), pages 7-46, 04.
    2. David Laidler, 1999. "Canada's Exchange Rate Options," Canadian Public Policy, University of Toronto Press, vol. 25(3), pages 324-332, September.
    3. Reinhart, Carmen & Rogoff, Kenneth, 2004. "The modern history of exchange rate arrangements: A reinterpretation," MPRA Paper 14070, University Library of Munich, Germany.
    4. Mundell, Robert A., 1999. "A Reconsideration of the Twentieth Century," Nobel Prize in Economics documents 1999-5, Nobel Prize Committee.
    5. Wyplosz, Charles, 2001. "Exchange Rate Regimes: Some Lessons from Postwar Europe," CEPR Discussion Papers 2723, C.E.P.R. Discussion Papers.
    6. Torres,Francisco & Giavazzi,Francesco (ed.), 1993. "Adjustment and Growth in the European Monetary Union," Cambridge Books, Cambridge University Press, number 9780521440196, October.
    7. Dean Scrimgeour, 2001. "Exchange rate volatility and Currency Union: Some theory and New Zealand evidence," Reserve Bank of New Zealand Discussion Paper Series DP2001/04, Reserve Bank of New Zealand.
    8. Luca Antonio Ricci, 1997. "Exchange Rate Regimes and Location," IMF Working Papers 97/69, International Monetary Fund.
    9. Reinhart, Carmen & Calvo, Guillermo, 2002. "Fear of floating," MPRA Paper 14000, University Library of Munich, Germany.
    10. Murray, John, 2000. "Why Canada needs a flexible exchange rate," The North American Journal of Economics and Finance, Elsevier, vol. 11(1), pages 41-60, August.
    11. George S. Tavlas, 1993. "The ‘New’ Theory of Optimum Currency Areas," The World Economy, Wiley Blackwell, vol. 16(6), pages 663-685, November.
    12. Mélitz, Jacques & Weber, Axel A, 1996. "The Costs/Benefits of a Common Monetary Policy in France and Germany and Possible Lessons for Monetary Union," CEPR Discussion Papers 1374, C.E.P.R. Discussion Papers.
    13. Charles Wyplosz, 2001. "A Monetary Union in Asia? Some European Lessons," RBA Annual Conference Volume, in: David Gruen & John Simon (ed.), Future Directions for Monetary Policies in East Asia Reserve Bank of Australia.
    14. Andrew K. Rose, 2001. "Currency unions and trade: the effect is large," Economic Policy, CEPR & CES & MSH, vol. 16(33), pages 449-461, October.
    15. Michael R. Pakko & Howard J. Wall, 2001. "Reconsidering the trade-creating effects of a currency union," Review, Federal Reserve Bank of St. Louis, issue May, pages 37-46.
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    Cited by:
    1. Sven Arndt, 2006. "Regional currency arrangements in North America," International Economics and Economic Policy, Springer, vol. 3(3), pages 265-280, December.
    2. repec:onb:oenbwp:y::i:121:b:1 is not listed on IDEAS

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