DP1673 How Will the Euro behave?

Author(s): Daniel Cohen
Publication Date: July 1997
Keyword(s): Euro, European Monetary Integration, Exchange Rate Fluctuations
JEL(s): F3, F4
Programme Areas: International Macroeconomics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=1673

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).