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Exchange rate strategies towards the euro-zone for new EU member states with currency boards

  • Katsimi, Margarita

The paper investigates the transition of the new EU countries with a currency board arrangement (CBA) to the euro-zone. The arguments for and against retaining a CBA while participating in the exchange rate mechanism of the EU (ERMII) are discussed. Then, we show in the framework of a signalling model that abandoning a CBA and allowing the exchange rate to fluctuate within the bands of ERMII can signal to markets the sustainability of nominal convergence and, hence, diminish uncertainty in the pre-accession period and increase the probability of being accepted into the euro-zone.

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Article provided by Elsevier in its journal Journal of Macroeconomics.

Volume (Year): 30 (2008)
Issue (Month): 3 (September)
Pages: 1043-1063

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Handle: RePEc:eee:jmacro:v:30:y:2008:i:3:p:1043-1063
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