DP1041 The Impact of Exchange Rate Fluctuations on European Union Trade
The impact of exchange rate fluctuations on international trade has long been a major concern for policy-makers. This is particularly the case in Europe, where countries trade extensively with each other. The crisis that began in the Summer of 1992 generated increased exchange rate fluctuations and, therefore, renewed concerns about consequences for trade inside the European Union. This report assesses the likely impact of the exchange rate crisis on trade flows inside and outside the Union. The analysis indicates the need to distinguish between short-term oscillations (i.e. volatility) and medium-term fluctuations (i.e. misalignment). We find that the recent ERM crisis is likely to have had some negative impact on trade within the region, but this impact is probably quite small.