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Is there a third way to EMU for the EU accession countries?

  • Bofinger, Peter
  • Wollmershauser, Timo

The actual mainstream view of academics emphasizes the so-called \"two-corner solution\" with either completely fixed or independently floating exchange rates. We will argue in this paper that the requirements for fixed rates are rather too restrictive to be successful. On the other hand, the advantage of an independent float is only valid for small open economies under the assumption of exchange rate movements closely related to movements in the fundamentals. We suggest as a \"third way\", a strategy of flexible exchange rate targeting where central banks simultaneously manage interest rates and exchange rates in a way that guarantees both the achievement of domestic macroeconomic objectives and an equilibrium on the international financial markets.

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Article provided by Elsevier in its journal Economic Systems.

Volume (Year): 25 (2001)
Issue (Month): 3 (September)
Pages: 253-274

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Handle: RePEc:eee:ecosys:v:25:y:2001:i:3:p:253-274
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  1. Carmen M. Reinhart, 2000. "Mirage of Floating Exchange Rates," American Economic Review, American Economic Association, vol. 90(2), pages 65-70, May.
  2. repec:cup:cbooks:9780521460477 is not listed on IDEAS
  3. Svensson, Lars E.O., 1998. "Open-Economy Inflation Targeting," Seminar Papers 638, Stockholm University, Institute for International Economic Studies.
  4. Maurice Obstfeld & Kenneth Rogoff, 1995. "The Mirage of Fixed Exchange Rates," NBER Working Papers 5191, National Bureau of Economic Research, Inc.
  5. Flood, Robert P. & Rose, Andrew K., 1995. "Fixing exchange rates A virtual quest for fundamentals," Journal of Monetary Economics, Elsevier, vol. 36(1), pages 3-37, August.
  6. Gerlach, Stefan & Smets, Frank, 2000. "MCIs and monetary policy," European Economic Review, Elsevier, vol. 44(9), pages 1677-1700, October.
  7. Flood, Robert P & Rose, Andrew K, 1996. "Fixes: Of the Forward Discount Puzzle," The Review of Economics and Statistics, MIT Press, vol. 78(4), pages 748-52, November.
  8. Bofinger, Peter, 2000. "A framework for stabilizing the euro/yen/dollar triplet," The North American Journal of Economics and Finance, Elsevier, vol. 11(2), pages 137-151, December.
  9. repec:cup:cbooks:9780521466004 is not listed on IDEAS
  10. Laurence M. Ball, 1999. "Policy Rules for Open Economies," NBER Chapters, in: Monetary Policy Rules, pages 127-156 National Bureau of Economic Research, Inc.
  11. Mayes, David G. & Viren, Matti, 1998. "The Exchange Rate and Monetary Conditions in the Euro Area," Research Discussion Papers 27/1998, Bank of Finland.
  12. Eika, Kari H & Ericsson, Neil R & Nymoen, Ragnar, 1996. "Hazards in Implementing a Monetary Conditions Index," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 58(4), pages 765-90, November.
  13. Jeffrey A. Frankel, 1999. "No Single Currency Regime is Right for All Countries or At All Times," NBER Working Papers 7338, National Bureau of Economic Research, Inc.
  14. Begg, David, 1998. "Pegging Out: Lessons from the Czech Exchange Rate Crisis," Journal of Comparative Economics, Elsevier, vol. 26(4), pages 669-690, December.
  15. Reinhart, Carmen, 2000. "The mirage of floating exchange rates," MPRA Paper 13736, University Library of Munich, Germany.
  16. Bela Balassa, 1964. "The Purchasing-Power Parity Doctrine: A Reappraisal," Journal of Political Economy, University of Chicago Press, vol. 72, pages 584.
  17. International Monetary Fund, 2000. "Exchange Rate Regimes in Selected Advanced Transition Economies: Coping with Transition, Capital Inflows, and EU Accession," IMF Policy Discussion Papers 00/3, International Monetary Fund.
  18. Szapary, Gyorgy & Jakab, Zoltan M., 1998. "Exchange Rate Policy in Transition Economies: The Case of Hungary," Journal of Comparative Economics, Elsevier, vol. 26(4), pages 691-717, December.
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