EMU, Adjustment, and Exchange Rate Variability

Author/Editor:

Luca A Ricci ; Peter Isard

Publication Date:

January 1, 1998

Electronic Access:

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Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

This paper uses a three-country, three-good, factor-specific model of trade with wage rigidities to investigate how European Monetary Union (EMU) is likely to affect exchange rate variability. Focusing on international macroeconomic adjustment under both exogenous and optimizing monetary policies, it shows that the relative variability (against external currencies) of the euro (under EMU) and a basket of present currencies (pre-EMU) depends on relative sizes and specialization patterns of EMU countries and the relative importance of different shocks. EMU is likely to decrease (increase) exchange rate variability for shocks to industries in which large (small) EMU countries are specialized.

Series:

Working Paper No. 1998/050

Subject:

Economic integration Employment Exchange rate adjustments Exchange rate flexibility Exchange rates Foreign exchange International trade Monetary unions Trade balance

English

Publication Date:

January 1, 1998

ISBN/ISSN:

9781451846942/1018-5941

Stock No:

WPIEA0501998

Pages:

27

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