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Exchange Rate Uncertainty and the Microeconomic Benefits of EMU

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  • Friberg, Richard

    ()
    (Department of Economics)

  • Vredin, Anders

    ()
    (Department of Economics)

Abstract

This paper attempts to review the argument that EMU leads to benefits from lower exchange rate uncertainty. Two questions are addressed. First, there is the microeconomic question of how exchange rate uncertainty affects firms. Second, there is the macroeconomic question of how EMU will be beneficial for Swedish firms: firms can adjust to exchange rate uncertainty, for instance by pricing-to-market; exchange rate changes may work as "automatic stabilizers"; there is no strong empirical evidence that trading partners, like the U.S., the U.K. and Denmark, are not likely to participate in the monetary union in the near future. For EMU speak the facts that exchange rate uncertainty stems from policy uncertainty, which may be lower inside EMU; that EMU may lower protectionist pressures; and, in particular, that it is very hard for firms ot hedge against total economic exchange rate risk (as opposed to mere transaction risk).

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Bibliographic Info

Paper provided by Stockholm School of Economics in its series Working Paper Series in Economics and Finance with number 127.

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Length: 57 pages
Date of creation: Sep 1996
Date of revision:
Publication status: Forthcoming in Swedish Economic Policy Review
Handle: RePEc:hhs:hastef:0127

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Keywords: Exchange rate uncertainty; EMU; exchange rate exposure;

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Cited by:
  1. Graham Bird & Ramkishen Rajan, 2002. "The Evolving Asian Financial Architecture," Centre for International Economic Studies Working Papers, University of Adelaide, Centre for International Economic Studies 2002-03, University of Adelaide, Centre for International Economic Studies.
  2. Westlund, Hans & Johansson, Magnus & Molinder, Jonas, 2000. "Exchange Rate Sensitivity Of Swedish Regions," ERSA conference papers ersa00p140, European Regional Science Association.
  3. G. Bird & R. Rajan, 2001. "Would International Currency Taxation and Currency Stabilisation in Developing Countries?," Journal of Development Studies, Taylor & Francis Journals, Taylor & Francis Journals, vol. 37(3), pages 21-38.
  4. John FitzGerald & Fergal Shortall, 1998. "Exchange Rate Changes and the Transmission of Inflation," Papers, Economic and Social Research Institute (ESRI) WP096, Economic and Social Research Institute (ESRI).
  5. Alexander Mihailov, 2009. "Exchange rate pass-through to prices in macrodata: a comparative sensitivity analysis," International Journal of Finance & Economics, John Wiley & Sons, Ltd., John Wiley & Sons, Ltd., vol. 14(4), pages 346-377.
  6. Ramkishen Rajan, 2010. "Sand in the Wheels of International Finance: Revisiting the Debate in Light of the East Asian Mayhem," Working Papers id:2686, eSocialSciences.
  7. Bowe, Michael & Saltvedt, Thina M., 2004. "Currency invoicing practices, exchange rate volatility and pricing-to-market: evidence from product level data," International Business Review, Elsevier, Elsevier, vol. 13(3), pages 281-308, June.
  8. Bergbom, Lennart, 1998. "Exchange Rate Variability Inside and Outside the EMU," Working Paper Series, Uppsala University, Department of Economics 1998:26, Uppsala University, Department of Economics.
  9. Friberg, Richard, 1998. "In which currency should exporters set their prices?," Journal of International Economics, Elsevier, Elsevier, vol. 45(1), pages 59-76, June.

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