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The Exchange Rate Policy of the Euro: A Matter of Size?

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Author Info
Martin, Philippe

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Abstract

This 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 1980–95 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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Publisher Info
Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 1646.

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Date of creation: May 1997
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Handle: RePEc:cpr:ceprdp:1646

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Related research
Keywords: Country Size; European Monetary Integration; Exchange Rate Instability;

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Find related papers by JEL classification:
F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission

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  2. Portes, Richard, 1999. "Global Financial Markets and Financial Stability: Europe's Role," CEPR Discussion Papers 2298, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  3. P.A.D. Cavelaars, 2003. "Double Discretion, International Spillovers and the WelfareImplications of Monetary Unification," DNB Staff Reports (discontinued) 85, Netherlands Central Bank. [Downloadable!]
  4. René Cabral-Torres, . "Assessing the Impact of Real Shocks on Small Dollarized Economies," Discussion Papers 05/27, Department of Economics, University of York. [Downloadable!]
  5. Agnes Benassy-Quere & Benoit Mojon & Armand-Denis Schor, 1998. "The International Role of the Euro," Working Papers 1998-03, CEPII research center. [Downloadable!]
  6. Carsten Detken & Philipp Hartmann, 2000. "The Euro and International Capital Markets," EUI-RSCAS Working Papers 27, European University Institute (EUI), Robert Schuman Centre of Advanced Studies (RSCAS). [Downloadable!]
  7. Paul Cavelaars, 2000. "Double Discretion, International Spillovers and the Welfare Implications of Monetary Unification," MEB Series (discontinued) 2000-12, Netherlands Central Bank, Monetary and Economic Policy Department. [Downloadable!]
  8. Agnes Benassy-Quere & Benoit Mojon, 1998. "EMU and Transatlantic Exchange Rate Stability," Working Papers 1998-02, CEPII research center. [Downloadable!]
  9. Jerome Creel & Henri Sterdyniak, 1998. "Discussing Euro Volatility," Documents de Travail de l'OFCE 1998-03, Observatoire Francais des Conjonctures Economiques (OFCE). [Downloadable!]
  10. Demertzis, Maria & Hughes Hallett, Andrew, 1999. "EMU and the External Value of the Euro," CEPR Discussion Papers 2058, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  11. Vaubel, Roland, . "The Future of the Euro : A Public Choice Perspective," IVS discussion paper series 570, Institut für Volkswirtschaft und Statistik (IVS), University of Mannheim. [Downloadable!]
  12. Rita De Siano & Marcella D'Uva & Giovanna Messina, 1999. "Aree Monetarie Ottimali: Literature Review," Working Papers 2_1999, D.E.S. (Department of Economic Studies), University of Naples "Parthenope", Italy. [Downloadable!]
  13. Xavier Debrun, 2000. "Fiscal Rules in a Monetary Union: A Short-Run Analysis," Open Economies Review, Springer, vol. 11(4), pages 323-358, October. [Downloadable!] (restricted)
  14. Fayolle, J. & Micolet, P-E., 1998. "Cycles internationaux et européens: éléments pour une problématique appliquée," Documents de Travail de l'OFCE 1998-01, Observatoire Francais des Conjonctures Economiques (OFCE). [Downloadable!]
  15. Agnes Benassy-Quere & Benoit Mojon & Jean Pisani-Ferry, 1997. "The Euro and Exchange Rate Stability," Working Papers 1997-12, CEPII research center. [Downloadable!]
  16. Juan Piñeiro Chousa, & Artur Tamazian, & Davit N. Melikyan,, 2008. "MARKET RISK DYNAMICS AND COMPETITIVENESS AFTER THE EURO: Evidence from EMU Members," William Davidson Institute Working Papers Series wp916, William Davidson Institute at the University of Michigan Stephen M. Ross Business School. [Downloadable!]
  17. Hallet, Martin, 1999. "The Impact of EMU on cohesion - further research needed?," ERSA conference papers ersa99pa087, European Regional Science Association. [Downloadable!]
  18. P.A.D. Cavelaars, 2003. "The Welfare Cost of Structural Distortions and Stochastic Shocks," DNB Staff Reports (discontinued) 84, Netherlands Central Bank. [Downloadable!]
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