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Exchange Rate Strategies towards EMU for Accession Countries with Currency Boards

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  • Margarita Katsimi

Abstract

This paper investigates the transition of the EU candidate countries with a currency board arrangement (CBA) to the euro-zone. The arguments for and against retaining a CBA while participating in the Exchange Rate Mechanism of the EU (ERMII) are discussed. Then, we show in the framework of a signalling model that abandoning a CBA and allowing the exchange rate to fluctuate within the bands of ERMII can signal to markets the sustainability of nominal convergence and, hence, diminish uncertainty in the pre-accession period and increase the probability of being accepted into the eurozone.

Suggested Citation

  • Margarita Katsimi, 2004. "Exchange Rate Strategies towards EMU for Accession Countries with Currency Boards," EUI-RSCAS Working Papers 18, European University Institute (EUI), Robert Schuman Centre of Advanced Studies (RSCAS).
    • Handle: RePEc:erp:euirsc:p0135
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    References listed on IDEAS

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    1. In-Koo Cho & David M. Kreps, 1987. "Signaling Games and Stable Equilibria," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 102(2), pages 179-221.
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    Cited by:

    1. Novak Kondić & Borivoje D. Krušković, 2013. "Unemployment Gap in the Currency Board Regime," Journal of Central Banking Theory and Practice, Central bank of Montenegro, vol. 2(3), pages 71-84.
    2. repec:cbk:journl:v:2:y:2013:i:2:p:71-84 is not listed on IDEAS

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    Keywords

    international trade; EMU; enlargement;
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