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Exchange Rate Volatility and Employment Growth: Empirical Evidence from the CEE Economies

  • Belke, Ansgar

    ()

    (University of Duisburg-Essen)

  • Setzer, Ralph

    ()

    (University of Hohenheim)

According to the traditional 'optimum currency area' approach, not much will be lost from a very hard peg to a currency union if there has been little reason for variations in the exchange rate. This paper takes a different approach and highlights the fact that high exchange rate volatility may as well signal high costs for labor markets. The impact of exchange rate volatility on labor markets in the CEECs is analyzed, finding that volatility visà- vis the euro significantly lowers employment growth. Hence, the elimination of exchange rate volatility could be considered as a substitute for a removal of employment protection legislation.

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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 1038.

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Length: 36 pages
Date of creation: Mar 2004
Date of revision:
Publication status: published in: Economic and Social Review, 2003, 34 (3), 267-292
Handle: RePEc:iza:izadps:dp1038
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