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Is there a third way to EMU for the EU accession countries?

Listed author(s):
  • Bofinger, Peter
  • Wollmershäuser, Timo

The actual mainstream view of academics emphasizes the so-called \"two-corner solution\" with either completely fixed or independently floating exchange rates. We will argue in this paper that the requirements for fixed rates are rather too restrictive to be successful. On the other hand, the advantage of an independent float is only valid for small open economies under the assumption of exchange rate movements closely related to movements in the fundamentals. We suggest as a \"third way\", a strategy of flexible exchange rate targeting where central banks simultaneously manage interest rates and exchange rates in a way that guarantees both the achievement of domestic macroeconomic objectives and an equilibrium on the international financial markets.

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Paper provided by University of Munich, Department of Economics in its series Munich Reprints in Economics with number 20209.

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Date of creation: 2001
Publication status: Published in Economic Systems 3 25(2001): pp. 253-274
Handle: RePEc:lmu:muenar:20209
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  1. Flood, Robert P & Rose, Andrew K, 1994. "Fixes: Of the Forward Discount Puzzle," CEPR Discussion Papers 1090, C.E.P.R. Discussion Papers.
  2. Laurence M. Ball, 1999. "Policy Rules for Open Economies," NBER Chapters, in: Monetary Policy Rules, pages 127-156 National Bureau of Economic Research, Inc.
  3. Eika, Kari H & Ericsson, Neil R & Nymoen, Ragnar, 1996. "Hazards in Implementing a Monetary Conditions Index," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 58(4), pages 765-790, November.
  4. Carmen M. Reinhart, 2000. "Mirage of Floating Exchange Rates," American Economic Review, American Economic Association, vol. 90(2), pages 65-70, May.
  5. Begg, David, 1998. "Pegging Out: Lessons from the Czech Exchange Rate Crisis," CEPR Discussion Papers 1956, C.E.P.R. Discussion Papers.
  6. Maurice Obstfeld & Kenneth Rogoff, 1995. "The Mirage of Fixed Exchange Rates," NBER Working Papers 5191, National Bureau of Economic Research, Inc.
  7. Svensson, Lars E.O., 1998. "Open-Economy Inflation Targeting," Seminar Papers 638, Stockholm University, Institute for International Economic Studies.
  8. Gerlach, Stefan & Smets, Frank, 2000. "MCIs and monetary policy," European Economic Review, Elsevier, vol. 44(9), pages 1677-1700, October.
  9. David Mayes & Matti Virén, 2000. "The exchange rate and monetary conditions in the Euro area," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 136(2), pages 199-231, June.
  10. Isard,Peter, 1995. "Exchange Rate Economics," Cambridge Books, Cambridge University Press, number 9780521460477, May.
  11. Szapary, Gyorgy & Jakab, Zoltan M., 1998. "Exchange Rate Policy in Transition Economies: The Case of Hungary," Journal of Comparative Economics, Elsevier, vol. 26(4), pages 691-717, December.
  12. International Monetary Fund, 2000. "Exchange Rate Regimes in Selected Advanced Transition Economies; Coping with Transition, Capital Inflows, and EU Accession," IMF Policy Discussion Papers 00/3, International Monetary Fund.
  13. Flood, Robert P & Rose, Andrew K, 1993. "Fixing Exchange Rates: A Virtual Quest for Fundamentals," CEPR Discussion Papers 838, C.E.P.R. Discussion Papers.
  14. Isard,Peter, 1995. "Exchange Rate Economics," Cambridge Books, Cambridge University Press, number 9780521466004, May.
  15. Bela Balassa, 1964. "The Purchasing-Power Parity Doctrine: A Reappraisal," Journal of Political Economy, University of Chicago Press, vol. 72, pages 584-584.
  16. Bofinger, Peter, 2000. "A framework for stabilizing the euro/yen/dollar triplet," The North American Journal of Economics and Finance, Elsevier, vol. 11(2), pages 137-151, December.
  17. Jeffrey A. Frankel, 1999. "No Single Currency Regime is Right for All Countries or At All Times," NBER Working Papers 7338, National Bureau of Economic Research, Inc.
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