DP4802 Exchange Rate Volatility and Labour Markets in the CEE Countries
|Author(s):||Ansgar Belke, Leo Kaas, Ralph Setzer|
|Publication Date:||December 2004|
|Keyword(s):||Central and Eastern Europe, currency union, euroization, exchange rate variability, job creation|
|JEL(s):||E42, F36, F42|
|Programme Areas:||International Macroeconomics|
|Link to this Page:||cepr.org/active/publications/discussion_papers/dp.php?dpno=4802|
According to the traditional 'optimum currency area' approach, the case for adopting a common currency is stronger if the countries are subject to relatively similar output shocks. This Paper takes a different approach and highlights the fact that high exchange rate volatility may as well signal high costs for labour markets. The impact of exchange rate volatility on labour markets in the CEECs is analysed, finding that volatility vis-à-vis the euro significantly lowers employment growth and raises the unemployment rate. Hence, the elimination of exchange rate volatility can be considered equally important for labour markets as a removal of employment protection legislation.