Working Paper: CEPR ID: DP1704
Authors: Patrick Honohan
Abstract: Like all major currencies, the euro will attract a fringe of hangers-on. Though this need not influence overall policy with regard to the value of the euro, important policy questions arise. Can EMU members gain from cooperative arrangements for influencing or supporting fringe currencies? If so, what kinds of arrangement can be envisaged? This paper offers a preliminary examination of these issues. It identifies potential scope for mutual gains from cooperative arrangements and discusses particular countries which might be candidates. The design of such arrangements is also considered, especially including alternatives to the ERM-type of arrangement.
Keywords: European Monetary Integration; Exchange Rate Policy
JEL Codes: F33; F36; F42
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| EMU members (F36) | bilateral exchange rate stability (F31) |
| cooperative arrangements with fringe currency holders (F33) | bilateral exchange rate stability (F31) |
| institutional arrangements (D02) | mitigate impact of asymmetric shocks (F41) |
| negotiated soft target zone for minibloc partners (D74) | pareto improvements in welfare (D69) |
| trade patterns (F10) | identification of miniblocs (Y90) |