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The Costs to Consumers of a Depreciated Conversion Rate to the Euro

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  • Marques, Luis B

Abstract

This paper measures the welfare cost to consumers of the bloc of Central and Eastern European Countries (CEEC), plus Malta and Cyprus, of choosing a de- preciated conversion rate when joining the European Monetary Union. For this, I present and solve an appropriately calibrated small open economy model where a euro-denominated bond and the equity on a traded goods sector are traded internationally. I show that the cost of depreciating the domestic currency against the euro by 20%, at the time of joining the European Monetary Union, entails a cost of approximately 1.65% in terms of lost lifetime utility (measured in equivalent units of consumption).

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 5723.

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Date of creation: Aug 2007
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Handle: RePEc:pra:mprapa:5723

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Keywords: trade effect; valuation effect; wealth effect; exchange rate;

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  18. Marques, Luis B, 2007. "Welfare Implications of Exchange Rate Changes," MPRA Paper 5721, University Library of Munich, Germany.
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