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Exchange Rate Variability Inside and Outside the EMU

  • Bergbom, Lennart

    (Department of Economics)

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    An often heard view is that exchange rate variability will decrease for a country that joins the EMU. This is not necessarily true. Both real and nominal exchange rate variability increase under certain circumstances when asymmetric demand shocks occur inside or outside the union. These results are obtained theoretically within a standard international macro-model but they also remain valid in a numerical simulation of this model.

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    File URL: http://www.nek.uu.se/pdf/1998wp26.pdf
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    Paper provided by Uppsala University, Department of Economics in its series Working Paper Series with number 1998:26.

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    Length: 48 pages
    Date of creation: 08 Dec 1998
    Date of revision:
    Handle: RePEc:hhs:uunewp:1998_026
    Contact details of provider: Postal: Department of Economics, Uppsala University, P. O. Box 513, SE-751 20 Uppsala, Sweden
    Phone: + 46 18 471 25 00
    Fax: + 46 18 471 14 78
    Web page: http://www.nek.uu.se/Email:


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    1. Cabalero, R.J., 1997. "Aggregaete Investment," Working papers 97-20, Massachusetts Institute of Technology (MIT), Department of Economics.
    2. Easterbrook, Frank H, 1984. "Two Agency-Cost Explanations of Dividends," American Economic Review, American Economic Association, vol. 74(4), pages 650-59, September.
    3. Arrow, Kenneth J & Lind, Robert C, 1970. "Uncertainty and the Evaluation of Public Investment Decisions," American Economic Review, American Economic Association, vol. 60(3), pages 364-78, June.
    4. Mankiw, N Gregory, 1985. "Small Menu Costs and Large Business Cycles: A Macroeconomic Model," The Quarterly Journal of Economics, MIT Press, vol. 100(2), pages 529-38, May.
    5. Maurice Obstfeld & Kenneth Rogoff, 1994. "Exchange Rate Dynamics Redux," NBER Working Papers 4693, National Bureau of Economic Research, Inc.
    6. Alun H. Thomas, 1997. "Is the Exchange Rate a Shock Absorber? the Case of Sweden," IMF Working Papers 97/176, International Monetary Fund.
    7. Friberg, Richard & Vredin, Anders, 1996. "Exchange Rate Uncertainty and the Microeconomic Benefits of EMU," SSE/EFI Working Paper Series in Economics and Finance 127, Stockholm School of Economics.
    8. Blanchard, Olivier Jean & Kiyotaki, Nobuhiro, 1987. "Monopolistic Competition and the Effects of Aggregate Demand," American Economic Review, American Economic Association, vol. 77(4), pages 647-66, September.
    9. Genberg, Hans, 1989. " Exchange Rate Management and Macroeconomic Policy: A National Perspective," Scandinavian Journal of Economics, Wiley Blackwell, vol. 91(2), pages 439-69.
    10. Akerlof, George A & Yellen, Janet L, 1985. "Can Small Deviations from Rationality Make Significant Differences to Economic Equilibria?," American Economic Review, American Economic Association, vol. 75(4), pages 708-20, September.
    11. Goldstein, Morris & Khan, Mohsin S., 1985. "Income and price effects in foreign trade," Handbook of International Economics, in: R. W. Jones & P. B. Kenen (ed.), Handbook of International Economics, edition 1, volume 2, chapter 20, pages 1041-1105 Elsevier.
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