Real Impacts of Intra-European Exchange Rate Variability: A Case for EMU?

Ansgar Belke and Daniel Gros

Open Economies Review, 2001, vol. 12, issue 3, 264 pages

Abstract: Intra-European exchange rate variability has significant economic costs. VAR causality tests show that higher short-run variability of exchange rates against other EU currencies was associated with higher unemployment, less employment, and lower investment for most EU member countries. Robustness tests show that this result holds up in the presence of both policy instruments that might have had an impact on exchange rate variability and cyclical variables that might have influenced labor demand. A model that incorporates the “option value of waiting” suggests that even short-term spikes in volatility exert a strong impact on investment and labor markets. Copyright Kluwer Academic Publishers 2001

Keywords: European Monetary Union; exchange rate variability; employment hysteresis; investment; option value; uncertainty (search for similar items in EconPapers)
Date: 2001
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DOI: 10.1023/A:1011112105352

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