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Exchange Rate Volatility and Labour Markets in the CEE Countries

Author

Listed:
  • Belke, Ansgar
  • Kaas, Leo
  • Setzer, Ralph

Abstract

According to the traditional 'optimum currency area' approach, the case for adopting a common currency is stronger if the countries are subject to relatively similar output shocks. This Paper takes a different approach and highlights the fact that high exchange rate volatility may as well signal high costs for labour markets. The impact of exchange rate volatility on labour markets in the CEECs is analysed, finding that volatility vis-à-vis the euro significantly lowers employment growth and raises the unemployment rate. Hence, the elimination of exchange rate volatility can be considered equally important for labour markets as a removal of employment protection legislation.

Suggested Citation

  • Belke, Ansgar & Kaas, Leo & Setzer, Ralph, 2004. "Exchange Rate Volatility and Labour Markets in the CEE Countries," CEPR Discussion Papers 4802, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:4802
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    Cited by:

    1. Brandmeier, Michael, 2006. "Reasons for real appreciation in Central Europe," Center for European, Governance and Economic Development Research Discussion Papers 55, University of Goettingen, Department of Economics.

    More about this item

    Keywords

    Central and Eastern Europe; currency union; euroization; exchange rate variability; job creation;

    JEL classification:

    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission

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