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The Exchange Rate -a Shock-Absorber or Source of Shocks? A Study of Four Open Economies

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  • Michael Artis
  • Michael Ehrmann

Abstract

The paper provides SVAR estimates for four open economies: the UK, Canada, Sweden and Denmark, making explicit a monetary policy reaction function and taking account of exchange rate targeting practices. The object of the analysis is to examine the idea that an independent money and exchange rate should allow for effective shock-absorption. A polar extreme would be that exchange markets breed their own, and destabilizing, shocks. The paper’s findings vary from one economy to another: monetary union appears easy to recommend for Sweden and Denmark, much less so for Canada and the UK.

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Bibliographic Info

Paper provided by European University Institute (EUI), Robert Schuman Centre of Advanced Studies (RSCAS) in its series EUI-RSCAS Working Papers with number 38.

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Date of creation: 15 Sep 2000
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Handle: RePEc:erp:euirsc:p0033

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Related research

Keywords: currency; economic integration; EMU; Euro; European Central Bank; political economy; U.K.;

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References

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  20. Vittorio Grilli & Nouriel Roubini, 1995. "Liquidity and Exchange Rates: Puzzling Evidence from the G-7 Countries," Working Papers 95-17, New York University, Leonard N. Stern School of Business, Department of Economics.
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  23. Michael Ehrmann, 2000. "Comparing monetary policy transmission across European countries," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 136(1), pages 58-83, March.
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