The Sustainability of Monetary Unions - Can the Euro Survive?
affiliation not provided to SSRN
University of Rome, Tor Vergata - Faculty of Economics
University of Rome, Tor Vergata - Department of Economics and Law
March 27, 2012
CEIS Working Paper No. 226
This paper aims to propose a new measure of exchange market pressure for countries operating in hard peg regimes, such as currency unions, currency boards or full dollarization. We use a general model of currency crisis to derive a sustainability index based upon the relationship between the shadow exchange rate and the output gap required to maintain the currency peg. We apply the new index to European Union countries in order to assess the sustainability of the Euro.
Number of Pages in PDF File: 27
Keywords: shadow exchange rate, currency crisis, exchange market pressure
JEL Classification: F3, F31, F41, G01
Date posted: March 27, 2012 ; Last revised: July 23, 2012