Discussion paper

DP2768 Exchange Rate Systems and Macroeconomic Stability

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.


Dellas, H and F Collard (2001), ‘DP2768 Exchange Rate Systems and Macroeconomic Stability‘, CEPR Discussion Paper No. 2768. CEPR Press, Paris & London. https://cepr.org/publications/dp2768