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Volume 53, Issue 5 -6

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Which Exchange-Rate Regime in the EMU Accession Period: An Empirical Analysis

Barrel, Ray; Holland, Dawn; Šmídková, Kateřina

Year: 2003   Volume: 53   Issue: 5 -6   Pages: 243-260

Abstract: This study is the second part of larger empirical work focused on the timing of European Monetary Union (EMU) accession and on the selection of a pre-accession exchange-rate regime. The tool of our empirical analysis used in both studies is a model simulation that benefits from a consistent macro framework and estimated model equations. Five accession countries were studied. The results demonstrate that it is important to design pre-EMU exchange-rate regimes independently, according to the characteristics of each accession country, such as openness, flexibility, or level of financial wealth. Following the European Exchange-rate Mechanism (ERM II) as a core monetary-policy strategy for the whole of the pre-EMU period may be beneficial only for some accession countries. While Poland would benefit from introducing a fixed-rate regime for the pre-EMU period, for example, the Czech Republic and Slovenia would benefit more from maintaining a floating exchange rate. For Estonia and Hungary, both options have comparable benefits.

JEL classification: E60, C53, F33

Keywords: accession countries; exchange-rate regime; empirical analysis

RePEc: n/a

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