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Real Exchange Rates Within and Between Currency Areas: How Far Away is EMU?

Author

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  • Neumann, Manfred J.M.
  • von Hagen, Jürgen

Abstract

The renewed quest for a European monetary union raises the question: Is Europe ready for a common currency? We compare the variability and persistence of real exchange rate fluctuations within the German monetary union and between Germany and eight European countries to assess the viability of a monetary union in Europe. The results suggest a `Two-Speed Europe'. A core union comprising Germany and her smaller neighbours is currently viable, but further convergence to reduce real exchange rate variability between these core countries and Denmark, France, Italy, and the United Kingdom is necessary. Alternatively, monetary union should be postponed until further adjustment has occurred. This period of waiting would neither require nor benefit much from further tightening of the current EMS.

Suggested Citation

  • Neumann, Manfred J.M. & von Hagen, Jürgen, 1992. "Real Exchange Rates Within and Between Currency Areas: How Far Away is EMU?," CEPR Discussion Papers 660, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:660
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    Keywords

    Currency Union; Economic Integration; Exchange Rates;
    All these keywords.

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration

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