Exchange Rate Volatility and Labor Markets in the CEE Countries
43 Pages Posted: 4 Apr 2005
Date Written: December 2004
Abstract
According to the traditional 'optimum currency area' approach, the case for adopting a common currency is stronger if the countries are subject to relatively similar output shocks. This Paper takes a different approach and highlights the fact that high exchange rate volatility may as well signal high costs for labor markets. The impact of exchange rate volatility on labor markets in the CEECs is analyzed, finding that volatility vis-a-vis the euro significantly lowers employment growth and raises the unemployment rate. Hence, the elimination of exchange rate volatility can be considered equally important for labor markets as a removal of employment protection legislation.
Keywords: Central and Eastern Europe, currency union, euroization, exchange rate variability, job creation
JEL Classification: E42, F36, F42
Suggested Citation: Suggested Citation
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