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The global implications of regional exchange rate regimes

  • Dellas, Harris
  • Tavlas, George

We examine the implications of a regional fixed exchange rate regime for global exchange rate volatility. We find that the concept of the optimum currency area plays a key role. There are significant effects on the volatility of the remaining flexible parities when the countries participating in the regional peg ¡V the ¡§ins¡¨ ¡V are not an optimum currency area. Or, but to a smaller extent, when the ¡§ins¡¨ and the ¡§outs¡¨ are asymmetric with regard to labor market flexibility and monetary policy conduct. Our analysis also suggests that greater global exchange rate stability would be more likely to be obtained if the U.S. rather than the EU targeted the EUR/USD rate.

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Article provided by Elsevier in its journal Journal of International Money and Finance.

Volume (Year): 24 (2005)
Issue (Month): 2 (March)
Pages: 243-255

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Handle: RePEc:eee:jimfin:v:24:y:2005:i:2:p:243-255
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/30443

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  1. Collard, Fabrice & Dellas, Harris, 2001. "Exchange Rate Systems and Macroeconomic Stability," CEPR Discussion Papers 2768, C.E.P.R. Discussion Papers.
  2. Blanchard, Olivier Jean & Kahn, Charles M, 1980. "The Solution of Linear Difference Models under Rational Expectations," Econometrica, Econometric Society, vol. 48(5), pages 1305-11, July.
  3. Lawrence J. Christiano & Martin Eichenbaum & Charles L. Evans, 2001. "Nominal rigidities and the dynamic effects of a shock to monetary policy," Working Paper Series WP-01-08, Federal Reserve Bank of Chicago.
  4. V. V. Chari & Patrick J. Kehoe & Ellen R. McGrattan, 1997. "Monetary Shocks and Real Exchange Rates in Sticky Price Models of International Business Cycles," NBER Working Papers 5876, National Bureau of Economic Research, Inc.
  5. George S. Tavlas, 1993. "The ‘New’ Theory of Optimum Currency Areas," The World Economy, Wiley Blackwell, vol. 16(6), pages 663-685, November.
  6. David Backus & Patrick J. Kehoe & Finn E. Kydland, 1993. "International Business Cycles: Theory and Evidence," NBER Working Papers 4493, National Bureau of Economic Research, Inc.
  7. Gerke, Rafael, 2001. "Nominal rigidities and the dynamic effects of a monetary shock," Darmstadt Discussion Papers in Economics 37702, Darmstadt Technical University, Department of Business Administration, Economics and Law, Institute of Economics (VWL).
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