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The External Policy of the Euro Area: Organizing for Foreign Exchange Intervention

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  • C. Randall Henning

    ()
    (Institute for International Economics)

Abstract

Scholarship on European integration has extensively debated the external character of the monetary union. The institutions of exchange rate policymaking bear substantially on the euro area’s role in international monetary conflict and cooperation. This working paper examines the institutional arrangements for foreign exchange intervention within the euro area and the policymaking surrounding the market operations of autumn 2000—the only case to date of euro area intervention in currency markets. Drawing on interviews of officials in finance ministries, central banks, European institutions, and international organizations, as well as public sources, the paper specifies the division of labor among the European Central Bank (ECB), Eurogroup, and other European actors and compares that arrangement with corresponding arrangements in the G-7 partners. It concludes, among other things, that (1) the interinstitutional understanding within the euro area gives substantial latitude to the ECB, greater latitude than held by central banks in its G-7 partners, (2) but the understanding is susceptible to renegotiation over time, and (3) economic divergence within the euro area potentially threatens the ability of the monetary union to act coherently externally.

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Bibliographic Info

Paper provided by Peterson Institute for International Economics in its series Working Paper Series with number WP06-4.

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Date of creation: Jun 2006
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Handle: RePEc:iie:wpaper:wp06-4

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Keywords: Foreign Exchange Intervention; Exchange Rate Policy and Policymaking; Economic and Monetary Union; Euro-Dollar Exchange Rate; European Central Bank; Eurogroup; G-7 Cooperation; Transatlantic Monetary Relations; Political Economy of Exchange Rates;

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References

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  1. Fratzscher, Marcel, 2008. "Communication and exchange rate policy," Journal of Macroeconomics, Elsevier, vol. 30(4), pages 1651-1672, December.
  2. repec:wop:humbsf:2000-43 is not listed on IDEAS
  3. John Williamson, 1999. "Crawling Bands or Monitoring Bands: How to Manage Exchange Rates in a World of Capital Mobility," Policy Briefs PB99-03, Peterson Institute for International Economics.
  4. C. Randall Henning, 1994. "Currencies and Politics in the United States, Germany, and Japan," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 15.
  5. Agnès Bénassy-Quéré & Benoît Mojon & Armand-Denis Schor, 1998. "The International Role of the Euro," Working Papers 1998-03, CEPII research center.
  6. Eichengreen, Barry & Ghironi, Fabio, 1997. "European Monetary Unification and International Monetary Cooperation," Center for International and Development Economics Research, Working Paper Series qt10d518tg, Center for International and Development Economics Research, Institute for Business and Economic Research, UC Berkeley.
  7. Alogoskoufis, George & Portes, Richard & Rey, Hélène, 1997. "The Emergence of the Euro as an International Currency," CEPR Discussion Papers 1741, C.E.P.R. Discussion Papers.
  8. Henning, C. Randall, 1998. "Systemic Conflict and Regional Monetary Integration: The Case of Europe," International Organization, Cambridge University Press, vol. 52(03), pages 537-573, June.
  9. Kenen, Peter B., 1998. "EMU and transatlantic economic relations," HWWA Discussion Papers 60, Hamburg Institute of International Economics (HWWA).
  10. C. Randall Henning, 1997. "Cooperating with Europe's Monetary Union," Peterson Institute Press: All Books, Peterson Institute for International Economics, number pa49.
  11. D. Begg & F. Giavazzi & Ch. Wyplosz, 1999. "Options for the Future Exchange RatePolicy of the EMU," VOPROSY ECONOMIKI, N.P. Redaktsiya zhurnala "Voprosy Economiki", vol. 1.
  12. Chinn, Menzie David, 2000. "The empirical determinants of the Euro: Short and long run perspectives," SFB 373 Discussion Papers 2000,43, Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes.
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Cited by:
  1. C. Randall Henning, 2007. "Congress, Treasury, and the Accountability of Exchange Rate Policy: How the 1988 Trade Act Should Be Reformed," Working Paper Series WP07-8, Peterson Institute for International Economics.
  2. Jérôme Creel & Eloi Laurent & Jacques Le Cacheux, 2007. "La politique de change de la zone euro ou le hold-up tranquille de la BCE," Sciences Po publications info:hdl:2441/2084, Sciences Po.
  3. Alan Ahearne & Jürgen von Hagen, 2006. "European perspectives on global imbalances," Working Papers 50, Bruegel.

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