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Exchange Rate Variability Inside and Outside the EMU

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  • Bergbom, Lennart

    (Department of Economics)

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    Abstract

    An often heard view is that exchange rate variability will decrease for a country that joins the EMU. This is not necessarily true. Both real and nominal exchange rate variability increase under certain circumstances when asymmetric demand shocks occur inside or outside the union. These results are obtained theoretically within a standard international macro-model but they also remain valid in a numerical simulation of this model.

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    File URL: http://www.nek.uu.se/pdf/1998wp26.pdf
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    Bibliographic Info

    Paper provided by Uppsala University, Department of Economics in its series Working Paper Series with number 1998:26.

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    Length: 48 pages
    Date of creation: 08 Dec 1998
    Date of revision:
    Handle: RePEc:hhs:uunewp:1998_026

    Contact details of provider:
    Postal: Department of Economics, Uppsala University, P. O. Box 513, SE-751 20 Uppsala, Sweden
    Phone: + 46 18 471 25 00
    Fax: + 46 18 471 14 78
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    Web page: http://www.nek.uu.se/
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    Keywords: Exchange rate variability; EMU; asymmetric shocks;

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    References

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    1. Genberg, Hans, 1989. " Exchange Rate Management and Macroeconomic Policy: A National Perspective," Scandinavian Journal of Economics, Wiley Blackwell, vol. 91(2), pages 439-69.
    2. Ricardo J. Caballero, 1997. "Aggregate Investment," NBER Working Papers 6264, National Bureau of Economic Research, Inc.
    3. Mankiw, N Gregory, 1985. "Small Menu Costs and Large Business Cycles: A Macroeconomic Model," The Quarterly Journal of Economics, MIT Press, vol. 100(2), pages 529-38, May.
    4. Goldstein, Morris & Khan, Mohsin S., 1985. "Income and price effects in foreign trade," Handbook of International Economics, in: R. W. Jones & P. B. Kenen (ed.), Handbook of International Economics, edition 1, volume 2, chapter 20, pages 1041-1105 Elsevier.
    5. Maurice Obstfeld & Kenneth Rogoff, 1996. "Exchange Rate Dynamics Redux," NBER Working Papers 4693, National Bureau of Economic Research, Inc.
    6. Akerlof, George A & Yellen, Janet L, 1985. "Can Small Deviations from Rationality Make Significant Differences to Economic Equilibria?," American Economic Review, American Economic Association, vol. 75(4), pages 708-20, September.
    7. Blanchard, Olivier Jean & Kiyotaki, Nobuhiro, 1987. "Monopolistic Competition and the Effects of Aggregate Demand," American Economic Review, American Economic Association, vol. 77(4), pages 647-66, September.
    8. Easterbrook, Frank H, 1984. "Two Agency-Cost Explanations of Dividends," American Economic Review, American Economic Association, vol. 74(4), pages 650-59, September.
    9. Arrow, Kenneth J & Lind, Robert C, 1970. "Uncertainty and the Evaluation of Public Investment Decisions," American Economic Review, American Economic Association, vol. 60(3), pages 364-78, June.
    10. Alun H. Thomas, 1997. "Is the Exchange Rate a Shock Absorber? The Case of Sweden," IMF Working Papers 97/176, International Monetary Fund.
    11. Friberg, Richard & Vredin, Anders, 1996. "Exchange Rate Uncertainty and the Microeconomic Benefits of EMU," Working Paper Series in Economics and Finance 127, Stockholm School of Economics.
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    Cited by:
    1. Bergvall, Anders, 2000. "Exchange Rate Regimes and Macroeconomic Stability: The Case of Sweden 1972-1996," Working Paper Series 2000:25, Uppsala University, Department of Economics.

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