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

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Author Info
Lúcio Vinhas de Souza
Elisabeth Ledrut

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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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File URL: http://www.ifw-members.ifw-kiel.de/publications/alternative-paths-towards-emu-lessons-from-an-expanded-mundell-fleming-model-for-the-accession-countries
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Publisher 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
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Handle: RePEc:kie:kieliw:1132

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

Find related papers by JEL classification:
E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
F02 - International Economics - - General - - - International Economic Order; Noneconomic International Organizations;; Economic Integration and Globalization: General
P33 - Economic Systems - - Socialist Institutions and Their Transitions - - - International Linkages

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

  1. Dornbusch, Rudiger, 1976. "Expectations and Exchange Rate Dynamics," Journal of Political Economy, University of Chicago Press, vol. 84(6), pages 1161-76, December. [Downloadable!] (restricted)
  2. Francesco Giavazzi & Marco Pagano, 1990. "Can Severe Fiscal Contractions be Expansionary? Tales of Two Small European Countries," NBER Working Papers 3372, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  3. Svensson, Lars E. O., 1997. "Inflation forecast targeting: Implementing and monitoring inflation targets," European Economic Review, Elsevier, vol. 41(6), pages 1111-1146, June. [Downloadable!] (restricted)
    Other versions:
  4. Lúcio Vinhas de Souza, 2002. "Integrated Monetary and Exchange Rate Frameworks," Tinbergen Institute Discussion Papers 02-054/2, Tinbergen Institute. [Downloadable!]
  5. Bofinger, Peter & Wollmershauser, Timo, 2001. "Is there a third way to EMU for the EU accession countries?," Economic Systems, Elsevier, vol. 25(3), pages 253-274, September. [Downloadable!] (restricted)
  6. Kai Leitemo & Oistein Roisland, 2002. "The Choice of Monetary Policy Regime for Small Open Economies," Annales d'Economie et de Statistique, ADRES, issue 67-68, pages 16, Juillet-D. [Downloadable!]
  7. Maurice Obstfeld, 2001. "International Macroeconomics: Beyond the Mundell-Fleming Model," NBER Working Papers 8369, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Zenon Kontolemis & Kevin Ross, 2005. "Exchange Rate Fluctuations in the New Member States of the European Union," Macroeconomics 0504015, EconWPA. [Downloadable!]
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