DP2550 The Exchange Rate - A Shock-Absorber or Source of Shocks? A Study of Four Open Economies
|Author(s):||Michael J Artis, Michael Ehrmann|
|Publication Date:||September 2000|
|Keyword(s):||Canada, Denmark, EMU, Optimal Currency Area, Structural Vector Autoregression, Sweden, UK|
|JEL(s):||C32, E42, F31, F33|
|Programme Areas:||International Macroeconomics|
|Link to this Page:||cepr.org/active/publications/discussion_papers/dp.php?dpno=2550|
The paper provides SVAR estimates for four open economies: the UK, Canada, Sweden and Denmark, making explicit a monetary policy reaction function and taking account of exchange rate targeting practices. The object of the analysis is to examine the idea that an independent money and exchange rate should allow for effective shock-absorption. A polar extreme would be that exchange markets breed their own, and destabilizing, shocks. The paper?s findings vary from one economy to another: monetary union appears easy to recommend for Sweden and Denmark, much less so for Canada and the UK.