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Alternative Paths Towards EMU: Lessons from an Expanded Mundell-Fleming Model for the Accession Countries

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  • Lúcio Vinhas de Souza
  • Elisabeth Ledrut

Abstract

A small expectations-expanded "Mundell-Fleming" model is built for the European Union Accession Countries and estimated to assess the optimality of different exchange rate regimes (a peg and a float) through a simple welfare function. Floating appears as the best option for most of the countries in our sample, and this conclusion is robust to changes in the weights of the welfare function. The "shock absorbing" qualities of the regimes for different types of innovations is assessed via a VAR and a structural model, and here again the float seems to outperform a harder regime, in the emergence of temporary shocks.

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Bibliographic Info

Paper provided by Kiel Institute for the World Economy in its series Kiel Working Papers with number 1132.

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Length: 22 pages
Date of creation: Oct 2002
Date of revision:
Handle: RePEc:kie:kieliw:1132

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Related research

Keywords: Euro; Enlargement; Transition Economies; Exchange Rate Regimes; Mundell-Fleming Models;

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References

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  1. Maurice Obstfeld., 2001. "International Macroeconomics: Beyond the Mundell-Fleming Model," Center for International and Development Economics Research (CIDER) Working Papers C01-121, University of California at Berkeley.
  2. Svensson, Lars E. O., 1997. "Inflation forecast targeting: Implementing and monitoring inflation targets," European Economic Review, Elsevier, vol. 41(6), pages 1111-1146, June.
  3. Francesco Giavazzi & Marco Pagano, 1990. "Can Severe Fiscal Contractions Be Expansionary? Tales of two Small Euopean Countries," Working Papers 89, Dipartimento Scienze Economiche, Universita' di Bologna.
  4. Dornbusch, Rudiger, 1976. "Expectations and Exchange Rate Dynamics," Journal of Political Economy, University of Chicago Press, vol. 84(6), pages 1161-76, December.
  5. Bofinger, Peter & Wollmershäuser, Timo, 2001. "Is there a third way to EMU for the EU accession countries?," Munich Reprints in Economics 20209, University of Munich, Department of Economics.
  6. Ivan Roberts & Rod Tyers, 2003. "China's Exchange Rate Policy: The Case for Greater Flexibility," Asian Economic Journal, East Asian Economic Association, vol. 17(2), pages 155-184, 06.
  7. L�cio Vinhas de Souza, 2002. "Integrated Monetary and Exchange Rate Frameworks," Tinbergen Institute Discussion Papers 02-054/2, Tinbergen Institute.
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Cited by:
  1. Zenon Kontolemis & Kevin Ross, 2005. "Exchange Rate Fluctuations in the New Member States of the European Union," Macroeconomics 0504015, EconWPA.

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