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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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  1. Fabrizio Coricelli & Mathilde Maurel, 2011. "Growth and Crisis in Transition: A Comparative Perspective," Review of International Economics, Wiley Blackwell, vol. 19(1), pages 49-64, 02.
  2. Andreas Hoffmann & Gunther Schnabl, 2007. "Monetary Policy, Vagabonding Liquidity and Bursting Bubbles in New and Emerging Markets – An Overinvestment View," CESifo Working Paper Series 2100, CESifo Group Munich.
  3. Aghion, Philippe & Bacchetta, Philippe & Rancière, Romain & Rogoff, Kenneth, 2009. "Exchange rate volatility and productivity growth: The role of financial development," Journal of Monetary Economics, Elsevier, vol. 56(4), pages 494-513, May.
  4. Jan Firdmuc & Mathilde Maurel, 2004. "Optimum choice of the exchange-rate regime for the accession-candidate countries," Post-Print halshs-00468631, HAL.
  5. Ian Babetskii & Laurence Boone & Mathilde Maurel, 2004. "Exchange rate regimes and shocks asymmetry: the case of the accession countries," Post-Print halshs-00468626, HAL.
  6. Chang, Roberto & Kaltani, Linda & Loayza, Norman, 2005. "Openness can be good for growth : the role of policy complementarities," Policy Research Working Paper Series 3763, The World Bank.
  7. Olivier Jean Blanchard & Lawrence F. Katz, 1992. "Regional Evolutions," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 23(1), pages 1-76.
  8. Andrew Rose, 2004. "A Meta-Analysis of the Effect of Common Currencies on International Trade," NBER Working Papers 10373, National Bureau of Economic Research, Inc.
  9. Ronald McKinnon & Gunther Schnabl, 2004. "The Return to Soft Dollar Pegging in East Asia. Mitigating Conflicted Virtue," International Finance 0406007, EconWPA, revised 07 Jul 2004.
  10. Ronald McKinnon & Gunther Schnabl, 2003. "The East Asian Dollar Standard, Fear of Floating, and Original Sin," Working Papers 03001, Stanford University, Department of Economics.
  11. Gunther Schnabl, 2007. "Exchange Rate Volatility and Growth in Emerging Europe and East Asia," CESifo Working Paper Series 2023, CESifo Group Munich.
  12. Fidrmuc, Jan, 2003. "Migration and Regional Adjustment to Asymmetric Shocks in Transition Economies," CEPR Discussion Papers 3798, C.E.P.R. Discussion Papers.
  13. Babetskii, Ian & Boone, Laurence & Maurel, Mathilde, 2002. "Exchange Rate Regimes and Supply Shocks Asymmetry: The Case of the Accession Countries," CEPR Discussion Papers 3408, C.E.P.R. Discussion Papers.
  14. Reinhart, Carmen & Calvo, Guillermo, 2002. "Fear of floating," MPRA Paper 14000, University Library of Munich, Germany.
  15. Corsetti, Giancarlo & Devereux, Michael P. & Hassler, John & Jenkinson, Tim & Saint-Paul, Gilles & Sinn, Hans-Werner & Sturm, Jan-Egbert & Vives, Xavier, 2009. "The financial crisis," Munich Reprints in Economics 20099, University of Munich, Department of Economics.
  16. Paul De Grauwe & Gunther Schnabl, 2008. "Exchange Rate Stability, Inflation, and Growth in (South) Eastern and Central Europe," Review of Development Economics, Wiley Blackwell, vol. 12(3), pages 530-549, 08.
  17. Decressin, Jorg & Fatas, Antonio, 1995. "Regional labor market dynamics in Europe," European Economic Review, Elsevier, vol. 39(9), pages 1627-1655, December.
  18. repec:hal:journl:halshs-00469327 is not listed on IDEAS
  19. Manuel Arellano & Stephen Bond, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," Review of Economic Studies, Oxford University Press, vol. 58(2), pages 277-297.
  20. Sweta Chaman Saxena & Valerie Cerra, 2005. "Growth Dynamics: The Myth of Economic Recovery," IMF Working Papers 05/147, International Monetary Fund.
  21. Flood, Robert P. & Garber, Peter M., 1984. "Collapsing exchange-rate regimes : Some linear examples," Journal of International Economics, Elsevier, vol. 17(1-2), pages 1-13, August.
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  23. Eichengreen, Barry, 2002. "Financial Crises and What to Do About Them," OUP Catalogue, Oxford University Press, number 9780199257447, July.
  24. Valerie Cerra & Ugo Panizza & Sweta C. Saxena, 2013. "International Evidence On Recovery From Recessions," Contemporary Economic Policy, Western Economic Association International, vol. 31(2), pages 424-439, 04.
  25. Harris Dellas & George S.Tavlas, 2009. "An Optimum-Currency-Area Odyssey," Working Papers 102, Bank of Greece.
  26. Chiara Bentivogli & Patrizio Pagano, 1999. "Regional Disparities and Labour Mobility: the Euro-11 versus the USA," LABOUR, CEIS, vol. 13(3), pages 737-760, 09.
  27. Gunther Schnabl & Holger Zemanek, 2011. "Inter-temporal savings, current account trends and asymmetric shocks in a heterogeneous European Monetary Union," Intereconomics: Review of European Economic Policy, Springer, vol. 46(3), pages 153-160, June.
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