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Exchange Rate Systems and Macroeconomic Stability

  • Collard, Fabrice
  • Dellas, Harris

We examine macroeconomic stability and the properties of the international transmission of business cycles under three exchange rate systems: a flexible, a unilateral peg and a single currency. The subjects of study are Germany and France. EMU increases output and decreases inflation variability in Germany but it has the opposite effect in France. It induces a strong negative international transmission of country specific supply shocks and amplifies the role of German supply shocks. These two facts may complicate ECB policy-making.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 2768.

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Date of creation: Apr 2001
Date of revision:
Handle: RePEc:cpr:ceprdp:2768
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  1. Obstfeld, Maurice & Rogoff, Kenneth, 1999. "New Directions for Stochastic Open Economy Models," Center for International and Development Economics Research, Working Paper Series qt5pf7g8sh, Center for International and Development Economics Research, Institute for Business and Economic Research, UC Berkeley.
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  7. Ohanian, Lee E & Stockman, Alan C, 1997. "Short-Run Independence of Monetary Policy under Pegged Exchange Rates and Effects of Money on Exchange Rates and Interest Rates," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 29(4), pages 783-806, November.
  8. Devereux, Michael B & Engel, Charles M, 2000. "Monetary Policy In The Open Economy Revisited: Price Setting Rules And Exchange Rate Flexibility," CEPR Discussion Papers 2454, C.E.P.R. Discussion Papers.
  9. Richard H. Clarida & Jordi Gali & Mark Gertler, 1998. "Monetary policy rules in practice," Proceedings, Federal Reserve Bank of San Francisco, issue Mar.
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  12. Peter Brandner & Klaus Neusser, 1992. "Business cycles in open economies: Stylized facts for Austria and Germany," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 128(1), pages 67-87, March.
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