Measuring Currency Pressure and Contagion Risks in Countries under Monetary Unions: The Case of Euro

Paolo Canofari, Giancarlo Marini and Giovanni Piersanti

Atlantic Economic Journal, 2014, vol. 42, issue 4, 455-469

Abstract: This paper proposes a measure of exchange market pressure for countries operating in hard peg regimes, such as currency unions, currency boards or full dollarization. We use a general model of currency crisis to derive a sustainability index based upon the relationship between the shadow exchange rate and the output gap required to maintain the currency peg. We apply the index to European Union countries in order to assess the sustainability of the euro. Copyright International Atlantic Economic Society 2014

Keywords: Shadow exchange rate; Currency crisis; Exchange market pressure; F30; F31; F32; F41; G01 (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (3)

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DOI: 10.1007/s11293-014-9434-2

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