Exchange Rate Variability and Labor Market Performance in the Visegrád Countries

Ansgar Belke and Ralph Setzer

Economic Change and Restructuring, 2003, vol. 36, issue 2, 153-175

Abstract: According to the traditional ‘optimum currency area’ approach, not much will be lost from a very hard peg to a currency union if there has been little reason for variations in the exchange rate. This paper takes a different approach and highlights the fact that high exchange rate volatility may as well signal high costs for labor markets. Based on the paper by Belke (2003), the impact of exchange rate volatility on labor markets in the four Visegrád Economies (Czech Republic, Hungary, Poland, and the Slovak Republic) is analyzed, finding that volatility vis-à-vis the euro significantly increases unemployment. Hence, the elimination of exchange rate volatility could be considered as a substitute for a removal of employment protection legislation. Copyright Kluwer Academic Publishers 2003

Keywords: exchange rate variability; job creation; option value of waiting; Visegrád countries (search for similar items in EconPapers)
Date: 2003
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Persistent link: https://EconPapers.repec.org/RePEc:kap:ecopln:v:36:y:2003:i:2:p:153-175

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DOI: 10.1023/B:ECOP.0000012255.94499.b2

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