Emu, Adjustment, and Exchange Rate Variability

27 Pages Posted: 15 Feb 2006

See all articles by Luca A. Ricci

Luca A. Ricci

International Monetary Fund (IMF) - Research Department

Peter Isard

International Monetary Fund (IMF) - Research Department

Date Written: April 1998

Abstract

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.

Keywords: EMU, Exchange rate variability

JEL Classification: F4, F31, F33, F36

Suggested Citation

Ricci, Luca Antonio and Isard, Peter, Emu, Adjustment, and Exchange Rate Variability (April 1998). IMF Working Paper No. 98/50, Available at SSRN: https://ssrn.com/abstract=882308

Luca Antonio Ricci (Contact Author)

International Monetary Fund (IMF) - Research Department ( email )

700 19th Street NW
Washington, DC 20431
United States
202-623-6007 (Phone)
202-623-4072 (Fax)

Peter Isard

International Monetary Fund (IMF) - Research Department ( email )

700 19th Street NW
Washington, DC 20431
United States

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