On February 2, 2002, Lithuania switched its currency anchor from the dollar to the euro. While pegging to the dollar (since April 1994) has proven successful throughout the transition years, the recent decision to peg to the euro was motivated by the increasing trade relations with European economies. Pizzati does not argue which peg is more appropriate, but he analyzes the implications of changing the exchange rate regime for different sectors and labor groups. While pegging to the euro entails more stability for the export sector, Lithuania is still dependent on dollar-based imports of primary goods from the Commonwealth of Independent States, more so than other Baltic countries or Central European economies. The author uses a multisector general equilibrium model to compare the effects of dollar-euro exchange rate movements under these alternative pegs. Overall, simulation results suggest that while a euro-peg will provide more stability to GDP and employment, it will also imply more volatility in prices, suggesting that under the new peg macroeconomic policy should be more concerned with inflationary pressures than before. From a sector-specific perspective, pegging to the euro will provide a more stable demand for unskilled-intensive manufacturing and commercial services. But other sectors, such as agriculture, will still face the same vulnerability to exchange rate movements. This suggests that additional policy measures may be needed to compensate sector-specific divergences.
Download Info
To download:
If you experience problems downloading a file, check if you have the
proper application to
view it first. Information about this may be contained
in the File-Format links below. In case of further problems read
the IDEAS help
page. Note that these files are not on the IDEAS
site. Please be patient as the files may be large.
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.:
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.)