The Global Implications of Regional Exchange Rate Regimes

20 Pages Posted: 27 Aug 2007 Last revised: 1 Aug 2022

Multiple version iconThere are 2 versions of this paper

Date Written: April 1, 2003

Abstract

This working paper was written by Harris Dellas (University of Bern, CEPR and IMOP) and George Tavlas (Bank of Greece).

We examine the implications of a regional fixed exchange rate regime for global exchange rate volatility. We find that the concept of the optimum currency area plays a key role. There are significant effects on the volatility of the remaining flexible parities when the countries participating in the regional peg - the "ins" - are not an optimum currency area. Or, but to a smaller extent, when the "ins" and the "outs" are asymmetric with regard to labor market flexibility and monetary policy conduct. Our analysis also suggests that greater global exchange rate stability would be more likely to be obtained if the U.S. rather than the EU targeted the EUR/USD rate.

Keywords: Regional exchange rate systems, global exchange rate volatility, optimum currency area

JEL Classification: E4, E5, F4

Suggested Citation

Institute for Monetary and Financial Research, Hong Kong, The Global Implications of Regional Exchange Rate Regimes (April 1, 2003). Hong Kong Institute for Monetary and Financial Research (HKIMR) Research Paper WP No. 08/2003, Journal of International Money and Finance, Vol. 24, No. 2, 2005, Available at SSRN: https://ssrn.com/abstract=1009165 or http://dx.doi.org/10.2139/ssrn.1009165

Hong Kong Institute for Monetary and Financial Research (Contact Author)

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