Exchange Rate Volatility and Labour Markets in the CEE Countries

Ansgar Belke, Leo Kaas and Ralph Setzer

No 4802, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: According to the traditional 'optimum currency area' approach, the case for adopting a common currency is stronger if the countries are subject to relatively similar output shocks. This Paper takes a different approach and highlights the fact that high exchange rate volatility may as well signal high costs for labour markets. The impact of exchange rate volatility on labour markets in the CEECs is analysed, finding that volatility vis-Ã -vis the euro significantly lowers employment growth and raises the unemployment rate. Hence, the elimination of exchange rate volatility can be considered equally important for labour markets as a removal of employment protection legislation.

Keywords: Central and eastern europe; Currency union; Euroization; Exchange rate variability; Job creation (search for similar items in EconPapers)
JEL-codes: E42 F36 F42 (search for similar items in EconPapers)
Date: 2004-12
New Economics Papers: this item is included in nep-eec, nep-fmk and nep-mac
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