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Dealing with the consequences of exchange rate misalignments for macroeconomic adjustments in the EMU

Vincent Duwicquet (), Jacques Mazier and Jamel Saadaoui ()

Metroeconomica, 2018, vol. 69, issue 4, 737-767

Abstract: The euro crisis sheds light on the nature of alternative adjustment mechanisms in the EMU. This article examines the exchange rate misalignments within the euro zone, using a FEER approach. To explore the consequences of these misalignments, we use an open economy SFC model with endogenous interest rates and Eurobonds. Facing a competitiveness loss in southern countries due to misalignments, three sets of alternative economic policy are investigated: a policy‐mix based on tax rebates to improve competitiveness; an increase in intra‐European financing by banks of northern countries; and an issuance of Eurobonds to pool European sovereign debt.

Date: 2018
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Handle: RePEc:bla:metroe:v:69:y:2018:i:4:p:737-767