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Booms and Busts in EMU

  • Gottfries, Nils

    ()

    (Department of Economics)

A floating exchange rate combined with a clear inflation target can be a powerful stabilizer even if there are fluctuations in exchange rates that are unrelated to current fundamentals. Under plausible conditions, most of the stabilisation will occur through the exchange rate, and fundamental shocks will generate considerable medium term exchange rate volatility. The consequences of asymmetric shocks inside EMU are worse than envisaged in early analyses of the EMU project such as Calmfors et al. (1997). Inflation and real interest rate differentials arise which magnify the imbalances and cause boom-bust cycles in the member countries.

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Paper provided by Uppsala University, Department of Economics in its series Working Paper Series with number 2003:29.

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Length: 35 pages
Date of creation: 09 Dec 2003
Date of revision:
Handle: RePEc:hhs:uunewp:2003_029
Contact details of provider: Postal: Department of Economics, Uppsala University, P. O. Box 513, SE-751 20 Uppsala, Sweden
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Fax: + 46 18 471 14 78
Web page: http://www.nek.uu.se/
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