Keynesian and Austrian Perspectives on Crisis, Shock Adjustment, Exchange Rate Regime and (Long-Term) Growth

Mathilde Maurel and Gunther Schnabl

Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) from HAL

Abstract: The 2010 European debt crisis has revived the discussion concerning the optimum adjustment strategy in the face of asymmetric shocks. Whereas Mundell's (1961) seminal theory on optimum currency areas suggests depreciation in the face of crisis, the most recent emergence of competitive depreciations, competitive interest rate cuts or currency wars questions the exchange rate as an adjustment tool to asymmetric economic development. This paper approaches the question from a theoretical perspective by confronting exchange rate based adjustment with crisis adjustment via price and wage cuts. Econometric estimations yield a negative impact of exchange rate flexibility/ volatility on growth, which is found to be particularly strong for countries with asymmetric business cycles and during recessions. Based on these findings we support a further enlargement of the European Monetary Union and recommend more exchange rate stability for the rest of the world.

Keywords: Exchange rate regime; crisis; shock adjustment; theory of optimum currency areas; Mundell; Schumpeter; Hayek; competitive depreciations; currency war; Régime de taux de change; ajustement à des chocs; théorie des zones monétaires optimales; dépréciations compétitives (search for similar items in EconPapers)
Date: 2011-01
New Economics Papers: this item is included in nep-cis and nep-hpe
Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-00565231
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Published in 2011

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Related works:
Journal Article: Keynesian and Austrian Perspectives on Crisis, Shock Adjustment, Exchange Rate Regime and (Long-Term) Growth (2012)
Working Paper: Keynesian and Austrian Perspectives on Crisis, Shock Adjustment, Exchange Rate Regime and (Long-Term) Growth (2012)
Working Paper: Keynesian and Austrian Perspectives on Crisis, Shock Adjustment, Exchange Rate Regime and (Long-Term) Growth (2012)
Working Paper: Keynesian and Austrian Perspectives on Crisis, Shock Adjustment, Exchange Rate Regime and (Long-Term) Growth (2011)
Working Paper: Keynesian and Austrian Perspectives on Crisis, Shock Adjustment, Exchange Rate Regime and (Long-Term) Growth (2011)
Working Paper: Keynesian and Austrian Perspective on Crisis, Shock Adjustment, Exchange Rate Regime and (Long-Term) Growth (2011)
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