Kiel Working Papers, Kiel Institute for World Economics
No 1132:
Alternative Paths Towards EMU: Lessons from an Expanded Mundell-Fleming Model for the Accession Countries
Lúcio Vinhas de Souza and Elisabeth Ledrut
Abstract: A small expectations-expanded "Mundell-Fleming" model is
built for the European Union Accession Countries and estimated to assess
the optimality of different exchange rate regimes (a peg and a float)
through a simple welfare function. Floating appears as the best option for
most of the countries in our sample, and this conclusion is robust to
changes in the weights of the welfare function. The "shock absorbing"
qualities of the regimes for different types of innovations is assessed via
a VAR and a structural model, and here again the float seems to outperform
a harder regime, in the emergence of temporary shocks.
Keywords: Euro, Enlargement, Transition Economies, Exchange Rate Regimes, Mundell-Fleming Models; (follow links to similar papers)
JEL-Codes: E52; E61; F02; P33; (follow links to similar papers)
22 pages, October 2002
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