Working Paper: CEPR ID: DP2955
Authors: Richard Portes
Abstract: This Paper analyses the issues raised by EMU for the relationships between the Euro area and the international financial system. The depreciation of the Euro exchange rate since the beginning of EMU has attracted most attention. The Paper argues that theory and the data support none of the conventional explanations and that a substantial appreciation will be required to bring the rate to a sustainable long-run equilibrium. It discusses exchange-rate intervention and suggests that the authorities should take a more active policy stance. The Paper assesses the role of the Euro as an international currency and the underlying developments in the capital markets and foreign exchange markets. It concludes with discussion of policies towards the international role of the Euro, in areas such as: data needs; financial market developments; euroisation; EMU and the international financial architecture; and the role of the Euro Group of finance ministers.
Keywords: EMU; Euro; Euroization; Exchange Rates; International Currencies
JEL Codes: F30; F40; G10
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| current exchange rates (F31) | future policy actions (E60) |
| policy actions (D78) | exchange rates (F31) |
| exchange rate interventions (F31) | strength of euro (F36) |
| market perceptions (G14) | euro interventions (F36) |
| exchange rate policies (F31) | euro's role as international currency (F33) |
| market integration (F02) | euro's international use (F36) |
| euroisation in candidate countries (F36) | demand for euros (F31) |
| demand for euros (F31) | euro's international role (F33) |