The Global Implications of Regional Exchange Rate Regimes
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
20 Pages Posted: 27 Aug 2007 Last revised: 1 Aug 2022
There are 2 versions of this paper
The Global Implications of Regional Exchange Rate Regimes
The Global Implications of Regional Exchange Rate Regimes
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: Suggested Citation
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