Scandinavian Working Papers in Economics

Working Paper Series,
Uppsala University, Department of Economics

No 1998:26: Exchange Rate Variability Inside and Outside the EMU

Lennart Bergbom
Additional contact information
Lennart Bergbom: Department of Economics, Postal: Uppsala University, P.O. Box 513, SE-751 20 Uppsala, Sweden

Abstract: An often heard view is that exchange rate variability will decrease for a country that joins the EMU. This is not necessarily true. Both real and nominal exchange rate variability increase under certain circumstances when asymmetric demand shocks occur inside or outside the union. These results are obtained theoretically within a standard international macro-model but they also remain valid in a numerical simulation of this model.

Keywords: Exchange rate variability; EMU; asymmetric shocks

JEL-codes: F31; F33; F36; F41

48 pages, December 8, 1998

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