Scandinavian Working Papers in Economics

Working Paper Series,
Research Institute of Industrial Economics

No 576: Exchange-Rate and Interest-Rate Driven Competitive Advantages in the EMU

Niclas Andrén () and Lars Oxelheim ()
Additional contact information
Niclas Andrén: Department of Business Administration, Postal: Lund University, P.O. Box 7080, SE-220 07 Lund, Sweden
Lars Oxelheim: The Research Institute of Industrial Economics, Postal: P.O. Box 55665, SE-102 15 Stockholm, Sweden

Abstract: Real exchange and interest rates may still fluctuate inside the EMU and give rise to changes in competitiveness. We find, in contrast to what is generally expected, no convergence in these variables after the introduction of the euro. On the contrary, a divergence is found that is extraordinary when compared to the preceding 40 years. The magnitude of the divergence should urge on a wave of restructuring in the EMU, conditioned upon adequate policy responses. The worst-case scenario involves a flight to structural support and protectionism, challenging the whole idea of the EMU.

Keywords: Real Exchange Rates; Real Interest Rates; EMU; Competitive Advantage; Restructuring

JEL-codes: E31; E44; F15; F23; G34

31 pages, March 12, 2002

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