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

Mathilde Maurel and Gunther Schnabl

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Abstract: The 2010/11 European debt crisis has revived the discussion concerning the optimal adjustment strategy in the face of asymmetric shocks. 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. Price flexibility is found to have a positive impact on growth. 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 (search for similar items in EconPapers)
Date: 2012-11
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Citations: View citations in EconPapers (10)

Published in Open Economies Review, 2012, 23 (5), pp.847-868. ⟨10.1007/s11079-011-9227-z⟩

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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 (2011)
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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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-00770908

DOI: 10.1007/s11079-011-9227-z

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