Working Paper: CEPR ID: DP1188
Authors: Tamim Bayoumi
Abstract: Two issues are discussed. The first is which countries might benefit from entry into EMU before the millennium. Germany and her immediate neighbours appear the most likely to gain; our knowledge is too uncertain to say whether all, some, or no countries would reap net economic benefits, however. The second issue is how to avoid exchange rate instability in the transition to EMU. Experience from earlier exchange rate regimes suggests that an early announcement of the parities at which different currencies would enter EMU could reduce such instability if governments were willing to accept the required limitations on domestic policies.
Keywords: EMU; Exchange Rates
JEL Codes: F33; F36
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| proximity to Germany (N93) | economic benefit from EMU (F36) |
| economic alignment (F55) | suitability for EMU (F36) |
| EMU membership (F36) | economic performance (P17) |
| early announcement of exchange rate parities (F31) | market confidence (G10) |
| policy commitment (E60) | financial stability (G28) |
| alignment of domestic policies (F68) | effectiveness of exchange rate policies (F31) |