DP2768 Exchange Rate Systems and Macroeconomic Stability
|Author(s):||Fabrice Collard, Harris Dellas|
|Publication Date:||April 2001|
|Keyword(s):||Flexible Exchange Rate, International Business Cycle Transmission, Monetary Union, Taylor Rules, Unilateral Exchange Rate Pegging|
|Programme Areas:||International Macroeconomics|
|Link to this Page:||cepr.org/active/publications/discussion_papers/dp.php?dpno=2768|
We examine macroeconomic stability and the properties of the international transmission of business cycles under three exchange rate systems: a flexible, a unilateral peg and a single currency. The subjects of study are Germany and France. EMU increases output and decreases inflation variability in Germany but it has the opposite effect in France. It induces a strong negative international transmission of country specific supply shocks and amplifies the role of German supply shocks. These two facts may complicate ECB policy-making.