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Designing EU–US Atlantic Monetary Relations: Exchange Rate Variability and Labour Markets

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  • Ansgar Belke
  • Daniel Gros

Abstract

The variability of the euro seems to have a statistically significant and economically small, but non‐negligible, impact on labour markets in Euroland. Unemployment tends to increase and employment growth tends to fall whenever the effective exchange rate of the euro or the bilateral euro/dollar exchange rate becomes more variable. In the US a similar effect seems to be operating, but it is statistically less strong, especially concerning employment growth, which seems largely insulated from exchange rate variability. These results fit the general observation that US labour markets are more flexible and that the euro area is considerably more open than the US (exports of goods and services amount to close to 18 per cent of Euroland GDP versus only about 11 per cent for the US).

Suggested Citation

  • Ansgar Belke & Daniel Gros, 2002. "Designing EU–US Atlantic Monetary Relations: Exchange Rate Variability and Labour Markets," The World Economy, Wiley Blackwell, vol. 25(6), pages 789-813, June.
    • Handle: RePEc:bla:worlde:v:25:y:2002:i:6:p:789-813
    DOI: 10.1111/1467-9701.00463
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