Working Paper: CEPR ID: DP1673
Authors: Daniel Cohen
Abstract: This paper investigates theoretically and empirically the effect on exchange rates of integrating monetary policy in Europe. It shows that the likely effect will be to generate a tighter European monetary policy (notwithstanding credibility aspects which are not discussed). The argument is that trade disequilibria will be less of a threat to European monetary policy than it is at the moment. Under certain circumstances, which are explored in the text, this could lead to a more volatile euro than we have currently (as a basket of currencies).
Keywords: euro; european monetary integration; exchange rate fluctuations
JEL Codes: F3; F4
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| less accommodating monetary policy (E52) | increased volatility of the euro (F31) |
| integration of monetary policy in Europe (E52) | tighter European monetary policy (E52) |
| tighter European monetary policy (E52) | more volatile euro (F31) |
| less open (L17) | more volatile euro in response to price shocks (F31) |