Monetary Union and the Interest-Exchange Rate Trade-off

Frank Bohn

Economics Discussion Papers from University of Essex, Department of Economics

Abstract: By using a multi-country simulation model this paper analyzes the qualitative effects of joining a monetary union. The transition to EMU (European Monetary Union) is shown to produce interest and exchange rate changes with substantial and countervailing effects on the real economy which can be traced through the model. Observable anticipation effects in the wake of the EMU are substantiated; and some policy recommendations for joining any monetary union are derived. It is also shown that fixing conversion rates at last-day market rates produces a unique outcome and not exchange rate indeterminacy as argued by de Grauwe (1997), Obstfeld (1998), and others.

Keywords: monetary union, interest rate equalization, endogenous depreciation expectations, exchange rate indeterminacy; MULTIMOD, simulation. (search for similar items in EconPapers)
Date: 2003
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Journal Article: Monetary Union and the Interest-Exchange Rate Trade-off (2004)
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