The EMU Enlargement and the Choice of the Euro Conversion Rates: Theoretical and Empirical Issues
AbstractThe paper deals with the choice of the nominal euro conversion rates for the acceding countries upon their accession to EMU. The paper reviews theoretical models of equilibrium exchange rates as well as discusses their interpretation and the ensuing policy recommendations. Problems with empirical estimations of existing models are addressed. It is argued that despite several equilibrium exchange rate theories not all of them are useful for the real policy choice of the nominal conversion rate. This and the intrinsic uncertainty of equilibrium exchange rate estimates lead to the conclusion that the range of “optimal” euro conversion rates is quiet wide and other issues must be taken into account. In particular, a smooth transition to the euro conversion rate and minimisation of risks of potential shocks to the economy should be the key concern. Consequently, recommendations for the selection of nominal conversion rates are largely dependent on the current exchange rate regime.
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Bibliographic InfoPaper provided by CASE-Center for Social and Economic Research in its series CASE Network Studies and Analyses with number 0269.
Length: 34 Pages
Date of creation: 2003
Date of revision:
equilibrium exchange rate models; EMU enlargement; acceding countries;
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