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Keynesian and Austrian Perspectives on Crisis, Shock Adjustment, Exchange Rate Regime and (Long-Term) Growth

  • Mathilde Maurel

    ()

  • Gunther Schnabl

    ()

The 2010/11 European debt crisis has revived the discussion concerning the optimal adjustment strategy in the face of asymmetric shocks. This paper approaches the question from a theoretical perspective by confronting exchange rate based adjustment with crisis adjustment via price and wage cuts. Econometric estimations yield a negative impact of exchange rate flexibility/volatility on growth, which is found to be particularly strong for countries with asymmetric business cycles and during recessions. Price flexibility is found to have a positive impact on growth. Based on these findings we support a further enlargement of the European Monetary Union and recommend more exchange rate stability for the rest of the world. Copyright Springer Science+Business Media, LLC 2012

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File URL: http://hdl.handle.net/10.1007/s11079-011-9227-z
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Article provided by Springer in its journal Open Economies Review.

Volume (Year): 23 (2012)
Issue (Month): 5 (November)
Pages: 847-868

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Handle: RePEc:kap:openec:v:23:y:2012:i:5:p:847-868
Contact details of provider: Web page: http://www.springerlink.com/link.asp?id=100323

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  25. repec:hal:journl:halshs-00469327 is not listed on IDEAS
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