The Exchange Rate Policy of the Euro: a Matter of Size?
AbstractThis paper analyses how country size affects exchange rate policy and volatility. A hump-shaped relation between exchange rate variability and the size of countries is generated in the theoretical model: exchange rate variability increases with country size for small countries, but then decreases for large countries. The paper finds that this theoretical prediction holds well for bilateral exchange rates of the OECD countries for the period 1980â95 as well as for a subsample of European exchange rates with respect to the dollar. The results suggest that dollar/euro volatility should be lower than the present dollar/Deutsche Mark volatility, but that the decrease may depend significatively on the size and composition of EMU.
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Bibliographic InfoPaper provided by CEPII research center in its series Working Papers with number 1997-06.
Date of creation: Apr 1997
Date of revision:
exchange rate policy; euro; european integration; game theory; shock; EMS; Economic policy;
Other versions of this item:
- Martin, Philippe, 1998. "The Exchange Rate Policy of the Euro: A Matter of Size?," Journal of the Japanese and International Economies, Elsevier, vol. 12(4), pages 455-482, December.
- Martin, Philippe, 1997. "The Exchange Rate Policy of the Euro: A Matter of Size?," CEPR Discussion Papers 1646, C.E.P.R. Discussion Papers.
- F31 - International Economics - - International Finance - - - Foreign Exchange
- C70 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - General
- F02 - International Economics - - General - - - International Economic Order; Noneconomic International Organizations;; Economic Integration and Globalization: General
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