Economic Stability and Choice of Exchange Rate Regimes

Sahoko Kaji
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Sahoko Kaji: Asian Development Bank Institute

No 408, ADBI Working Papers from Asian Development Bank Institute

Abstract: This paper emphasizes the importance of Europe’s structural problems and governance as the cause of the current euro area crisis. The euro may have led to bubbles, but member economies were not free of trouble before the euro. Many members were losing competitiveness and in need of removing structural rigidities. If anything, the euro was expected to encourage structural reform, by taking away the easy choice of monetary and fiscal expansion. We first discuss the relationship between the single currency and economic stability in Europe. We confirm the asymmetries that remained after the introduction of the euro and then discuss the governance overhaul taking place in Europe today. This overhaul was something that should have been done before introducing the euro, and its advancement may be the silver lining of this crisis. Finally, we touch upon the implications for Asia and Japan, from the point of view of the choice of exchange rate regime as a method to advance necessary reforms.

Keywords: single currency; europe; euro area crisis; economic stability; exchange rate regimes (search for similar items in EconPapers)
JEL-codes: F33 F41 (search for similar items in EconPapers)
Pages: 25 pages
Date: 2013-02-20
New Economics Papers: this item is included in nep-cba, nep-eec, nep-mon and nep-sea
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