The Costs to Consumers of a Depreciated Conversion Rate to the Euro

Luis Brandao Marques

MPRA Paper from University Library of Munich, Germany

Abstract: This paper measures the welfare cost to consumers of the bloc of Central and Eastern European Countries (CEEC), plus Malta and Cyprus, of choosing a de- preciated conversion rate when joining the European Monetary Union. For this, I present and solve an appropriately calibrated small open economy model where a euro-denominated bond and the equity on a traded goods sector are traded internationally. I show that the cost of depreciating the domestic currency against the euro by 20%, at the time of joining the European Monetary Union, entails a cost of approximately 1.65% in terms of lost lifetime utility (measured in equivalent units of consumption).

Keywords: trade effect; valuation effect; wealth effect; exchange rate (search for similar items in EconPapers)
JEL-codes: F31 F41 F47 (search for similar items in EconPapers)
Date: 2007-08
New Economics Papers: this item is included in nep-cba, nep-eec, nep-ifn and nep-mon
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:5723

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