SSE/EFI Working Paper Series in Economics and Finance
Exchange Rate Uncertainty and the Microeconomic Benefits of EMU
() and Anders Vredin
Abstract: This paper attempts to review the argument that EMU leads
to benefits from lower exchange rate uncertainty. Two questions are
addressed. First, there is the microeconomic question of how exchange rate
uncertainty affects firms. Second, there is the macroeconomic question of
how EMU will be beneficial for Swedish firms: firms can adjust to exchange
rate uncertainty, for instance by pricing-to-market; exchange rate changes
may work as "automatic stabilizers"; there is no strong empirical evidence
that trading partners, like the U.S., the U.K. and Denmark, are not likely
to participate in the monetary union in the near future. For EMU speak the
facts that exchange rate uncertainty stems from policy uncertainty, which
may be lower inside EMU; that EMU may lower protectionist pressures; and,
in particular, that it is very hard for firms ot hedge against total
economic exchange rate risk (as opposed to mere transaction risk).
Keywords: Exchange rate uncertainty; EMU; exchange rate exposure; (follow links to similar papers)
JEL-Codes: F20; F33; (follow links to similar papers)
57 pages, September 1996
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- This paper is forthcoming as:
Friberg, Richard and Anders Vredin, 'Exchange Rate Uncertainty and the Microeconomic Benefits of EMU', Swedish Economic Policy Review.
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