Exchange Rate Volatility and Growth in Small Open Economies at the EMU Periphery
Posted: 14 Mar 2008
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Exchange Rate Volatility and Growth in Small Open Economies at the EMU Periphery
Exchange Rate Volatility and Growth in Small Open Economies at the EMU Periphery
Abstract
Since the introduction of the euro in January 1999, exchange rate stability in the periphery of the euro area is growing. The paper investigates the impact of exchange rate stability on growth for a sample of 41 mostly small open economies at the EMU periphery. It identifies international trade, international capital flows and macroeconomic stability as important transmission channels from exchange rate stability to more growth. Panel estimations reveal a robust negative relationship between exchange rate volatility and growth for countries in the economic catch-up process with open capital accounts.
Keywords: Exchange rate regimes, Growth, EMU periphery, International role of the Euro
JEL Classification: F31
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