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Monetary Union and the Interest-Exchange Rate Trade-off

Bohn, Frank (2003) Monetary Union and the Interest-Exchange Rate Trade-off. Working Paper. University of Essex, Department of Economics, Economics Discussion Papers, Colchester.


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By using a multi-country simulation model this paper analyzes the qualitative effects of joining a monetary union. The transition to EMU (European Monetary Union) is shown to produce interest and exchange rate changes with substantial and countervailing effects on the real economy which can be traced through the model. Observable anticipation effects in the wake of the EMU are substantiated; and some policy recommendations for joining any monetary union are derived. It is also shown that fixing conversion rates at last-day market rates produces a unique outcome and not exchange rate indeterminacy as argued by de Grauwe (1997), Obstfeld (1998), and others.

Item Type: Monograph (Working Paper)
Uncontrolled Keywords: monetary union, interest rate equalization, endogenous depreciation expectations, exchange rate indeterminacy; MULTIMOD, simulation.
Subjects: H Social Sciences > HB Economic Theory
Divisions: Faculty of Social Sciences > Economics, Department of
Depositing User: Users 161 not found.
Date Deposited: 28 Aug 2014 14:23
Last Modified: 28 Aug 2014 14:24

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