A Nash Threat Game of Passing Through Exchange Rate Mechanism II

Christian Fahrholz

No 2007-050, Jena Economics Research Papers from Friedrich-Schiller-University Jena

Abstract: Following entrance into the European Union, Central Eastern European Countries (CEECs) are expected to join the European Monetary Union (EMU). These countries may incur considerable costs over the course of their passing through the required Exchange Rate Mechanism II (ERM-II). However, with enough bargaining leverage CEECs may be able to pass some of these costs on to current EMU-members. In turn, a CEEC's leverage depends on their ability to wield successful brinkmanship via an exchange-rate policy characterized by a 'threaten-thy-neighbor' strategy. A two-stage Nash-threat game captures the essentials of the CEECs' phase of ERM-II pass through.

Keywords: Threat game; Nash-bargaining solution; exchange-rate policy; EU-enlargement; EMU (search for similar items in EconPapers)
JEL-codes: C72 C78 F33 F51 (search for similar items in EconPapers)
Date: 2007-08-22
New Economics Papers: this item is included in nep-cba, nep-eec, nep-gth and nep-ifn
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Persistent link: https://EconPapers.repec.org/RePEc:jrp:jrpwrp:2007-050

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