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Exchange Rate Movements and Unemployment in the EU Accession Countries-A Panel Analysis

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  • Ansgar Belke

Abstract

According to the traditional "optimum currency area" approach, not much will be lost from a very hard peg to a currency union if there has been little reason for variations in the exchange rate. This paper takes a different approach, and highlights the fact that high exchange rate volatility may as well signal high costs for labor markets. The impact of exchange rate volatility on labor markets in the CEECs is put to the test, finding that volatility vis-à-vis the euro significantly increases unemployment. Hence, the elimination of exchange rate volatility could be considered as a substitute for a removal of employment protection legislation. However, labor market reform could be argued to be an equally worthy strategy, backed up by central bank independence and the adoption of an anti-inflation monetary policy rule. Copyright Blackwell Publishing Ltd 2005.

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  • Ansgar Belke, 2005. "Exchange Rate Movements and Unemployment in the EU Accession Countries-A Panel Analysis," Review of Development Economics, Wiley Blackwell, vol. 9(2), pages 249-263, May.
  • Handle: RePEc:bla:rdevec:v:9:y:2005:i:2:p:249-263
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    1. repec:eid:wpaper:01/11 is not listed on IDEAS
    2. Feldmann, Horst, 2011. "The unemployment effect of exchange rate volatility in industrial countries," Economics Letters, Elsevier, vol. 111(3), pages 268-271, June.
    3. Mourad Zmami & Ousama Ben-Salha, 2015. "Exchange rate movements and manufacturing employment in Tunisia: Do different categories of firms react similarly?," Economic Change and Restructuring, Springer, pages 137-167.
    4. Jovanovic, Branimir & Petreski, Marjan, 2014. "Monetary policy, exchange rates and labor unions in SEE and the CIS during the financial crisis," Economic Systems, Elsevier, vol. 38(3), pages 309-332.

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