Real Exchange Rate Adjustment In and Out of the Eurozone
7 Pages Posted: 6 Jun 2013
Date Written: May 1, 2012
Abstract
It is often suggested that currency unions unduly inhibit the efficient adjustment of real exchange rates. Recently, this has been seen as a key failure of the Eurozone. This paper presents evidence that throws doubt on this conclusion. Our evidence suggests that real exchange rate movement within the Eurozone was at least as compatible with efficient adjustment as the behavior of real exchange rates for the floating rate countries outside the Eurozone. This interpretation is consistent with a model in which nominal exchange rate movements give rise to persistent deviations from the law of one price in traded goods.
Keywords: Real exchange rates, Eurozone
JEL Classification: F31, F33
Suggested Citation: Suggested Citation
Do you have negative results from your research you’d like to share?
Recommended Papers
-
By Charles M. Engel and John H. Rogers
-
Perspectives on PPP and Long-Run Real Exchange Rates
By Kenneth Froot and Kenneth Rogoff
-
A Panel Project on Purchasing Power Parity: Mean Reversion within and between Countries
-
Purchasing Power Parity in the Long Run
By Niso Abuaf and Philippe Jorion
-
Convergence to the Law of One Price Without Trade Barriers or Currency Fluctuations
By David C. Parsley and Shang-jin Wei
-
Explaining the Border Effect: The Role of Exchange Rate Variability, Shipping Costs, and Geography
By David C. Parsley and Shang-jin Wei