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A Strategy for Launching the Euro

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Maurice Obstfeld

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Abstract

This paper analyzes the constraints European Union law places on the 1 January 1999" choices of irrevocably fixed conversion rates between the Euro and the currencies of EMU" member states. Current EU legislation, notably the Maastricht treaty bilateral currency conversion factors implied by the 1 January 1999 choices equal closing" market exchange rates on 31 December 1998. Given that legal constraint several strategies for choosing the relative prices of EMU member currencies against the Euro. " Unfortunately, most of these have potentially damaging side effects. One approach official Stage 2 offers of contingent Euro forward contracts with value dates at the start of" Stage 3, allows a highly credible preannouncement of the bilateral currency conversion factors" to be set at the start of EMU. That approach assumes, however, that no prospective EMU" members can withdraw between their selection in May 1998 and the start of Stage 3."

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 6233.

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Date of creation: Mar 1999
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Publication status: published as European Economic Review, vol. 42, no. 6, pp. 975-1007, 1998.
Handle: RePEc:nbr:nberwo:6233

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F31 - International Economics - - International Finance - - - Foreign Exchange
F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions

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  1. De Grauwe, Paul, 1997. "The Indeterminacy of the Euro Conversion Rates. Why it Matters and How it can be Solved," CEPR Discussion Papers 1677, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  2. De Grauwe, Paul, 1996. "How to Fix Conversion Rates at the Start of EMU," CEPR Discussion Papers 1530, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  3. De Grauwe, Paul & Spaventa, Luigi, 1997. "Setting Conversion Rates for the Third Stage of EMU," CEPR Discussion Papers 1638, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  4. Kareken, John & Wallace, Neil, 1981. "On the Indeterminacy of Equilibrium Exchange Rates," The Quarterly Journal of Economics, MIT Press, vol. 96(2), pages 207-22, May. [Downloadable!] (restricted)
  5. Kenneth A. Froot & Kenneth Rogoff, 1991. "The EMS, the EMU, and the Transition to a Common Currency," NBER Working Papers 3684, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  6. Mussa, Michael, 1976. " The Exchange Rate, the Balance of Payments and Monetary and Fiscal Policy under a Regime of Controlled Floating," Scandinavian Journal of Economics, Blackwell Publishing, vol. 78(2), pages 229-48.
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(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. Maurice Obstfeld, 2000. "EMU: Ready, or Not?," International Trade 0003001, EconWPA. [Downloadable!]
    Other versions:
  2. Mark Trede & Bernd Wilfling, 2007. "Estimating exchange rate dynamics with diffusion processes: an application to Greek EMU data," Empirical Economics, Springer, vol. 33(1), pages 23-39, July. [Downloadable!] (restricted)
  3. Wyplosz, Charles, 1997. "EMU: Why and How It Might Happen," Journal of Economic Perspectives, American Economic Association, vol. 11(4), pages 3-21, Fall. [Downloadable!] (restricted)
    Other versions:
  4. F. Bohn, 2003. "Monetary Union and the Interest-Exchange Rate Trade-off," Economics Discussion Papers 554, University of Essex, Department of Economics. [Downloadable!]
    Other versions:
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