Exchange Rate Pass-Through and Monetary Integration in the Euro Area
AbstractThe purpose of this study is to examine how monetary integration affects the exchange rate pass-through, by testing whether monetary policy convergence in the euro area led to a convergence in terms of exchange rate pass-through. We conduct a comparative study between the "experiment group" (the euro area) and the "control group" (non-euro industrial countries). We find evidence for stronger convergence of exchange rate pass-through for the euro area economies as a group, especially around the 1980s. The group of non-euro industrial countries also had conditional convergence (convergence with permanent cross-sectional heterogeneity) in exchange rate pass-through, but its cross-sectional dispersion remains substantially larger compared to the euro area. This indicates that monetary integration affects the exchange rate pass-through. This has an important policy implication for the euro area, especially for the new member countries, as their exchange rate pass-through would not remain constant or purely exogenous; it should also converge to the euro area average as they work to achieve the Maastricht Criteria.
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Bibliographic InfoPaper provided by Netherlands Central Bank, Research Department in its series DNB Working Papers with number 308.
Date of creation: Aug 2011
Date of revision:
Monetary Policy; Central Banks and Their Policies; International Monetary Arrangements and Institutions;
Find related papers by JEL classification:
- E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
- E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
- F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-08-22 (All new papers)
- NEP-CBA-2011-08-22 (Central Banking)
- NEP-EEC-2011-08-22 (European Economics)
- NEP-IFN-2011-08-22 (International Finance)
- NEP-MAC-2011-08-22 (Macroeconomics)
- NEP-MON-2011-08-22 (Monetary Economics)
- NEP-OPM-2011-08-22 (Open Economy Macroeconomics)
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