Exchange Rate Volatility and Labour Markets in the CEE Countries

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Exchange Rate Volatility and Labour Markets in the CEE Countries

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Belke, Ansgar
Kaas, Leo
Setzer, Ralph

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Abstract

According to the traditional 'optimum currency area' approach, the case for adopting a common currency is stronger if the countries are subject to relatively similar output shocks. This Paper takes a different approach and highlights the fact that high exchange rate volatility may as well signal high costs for labour markets. The impact of exchange rate volatility on labour markets in the CEECs is analysed, finding that volatility vis-à-vis the euro significantly lowers employment growth and raises the unemployment rate. Hence, the elimination of exchange rate volatility can be considered equally important for labour markets as a removal of employment protection legislation.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 4802.

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Date of creation: Dec 2004
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Handle: RePEc:cpr:ceprdp:4802

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Find related papers by JEL classification:
E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission

This paper has been announced in the following NEP Reports:

NEP-ALL-2005-06-14 (All new papers)
NEP-EEC-2005-06-14 (European Economics)
NEP-FMK-2005-06-14 (Financial Markets)
NEP-MAC-2005-06-14 (Macroeconomics)

Cited by:
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Gunther Schnabl & Christina Ziegler, 2008. "Exchange Rate Regime and Wage Determination in Central and Eastern Europe," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]

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This page was last updated on 2009-11-25.

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