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The Global Implications of Regional Exchange Rate Regines

  • Harris Dellas

    (University of Bern, Department of Economics, CEPR and IMOP)

  • George S. Tavlas

    ()

    (Bank of Greece, Economic Research Department)

We examine the implications of a regional, fixed exchange rate regime for global exchange rate volatility. The concept of the optimum currency area turns out to play an important role. The formation of a regional regime tends to decrease global volatility when countries are symmetric. The effects tend to be ambiguous in the case of asymmetries. The reduction in global volatility is larger when the rest of the world has more rigid labor markets than the peggers. When the exchange rate management is done mostly by countries with relatively more flexible labor markets. And in the presence of a negative correlation in productivity shocks across countries.

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File URL: http://www.bankofgreece.gr/BogEkdoseis/Paper200418.pdf
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Paper provided by Bank of Greece in its series Working Papers with number 18.

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Length: 22 pages
Date of creation: Oct 2004
Date of revision:
Publication status: Published in Journal of International Money and Finance, 2005, 24 (2), pp. 243-255
Handle: RePEc:bog:wpaper:18
Contact details of provider: Web page: http://www.bankofgreece.gr

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  1. 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.
  2. George S. Tavlas, 1993. "The ‘New’ Theory of Optimum Currency Areas," The World Economy, Wiley Blackwell, vol. 16(6), pages 663-685, November.
  3. Lawrence J. Christiano & Martin Eichenbaum & Charles Evans, 2001. "Nominal rigidities and the dynamic effects of a shock to monetary policy," Working Paper 0107, Federal Reserve Bank of Cleveland.
  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. Collard, Fabrice & Dellas, Harris, 2002. "Exchange rate systems and macroeconomic stability," Journal of Monetary Economics, Elsevier, vol. 49(3), pages 571-599, April.
  6. 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).
  7. 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.
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