Exchange Rate Systems and Macroeconomic Stability

Harris Dellas () and Fabrice Collard

No 2768, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We examine macroeconomic stability and the properties of the international transmission of business cycles under three exchange rate systems: a flexible, a unilateral peg and a single currency. The subjects of study are Germany and France. EMU increases output and decreases inflation variability in Germany but it has the opposite effect in France. It induces a strong negative international transmission of country specific supply shocks and amplifies the role of German supply shocks. These two facts may complicate ECB policy-making.

Keywords: Flexible exchange rate; Unilateral exchange rate pegging; Monetary union; International business cycle transmission; Taylor rules (search for similar items in EconPapers)
JEL-codes: E32 (search for similar items in EconPapers)
Date: 2001-04
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Journal Article: Exchange rate systems and macroeconomic stability (2002)
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