Sudden stops in a currency union - some lessons from the euro area

2019 ◽  
Vol 66 (1) ◽  
pp. 115-138 ◽  
Author(s):  
Lena Kraus ◽  
Jürgen Beier ◽  
Bernhard Herz
Keyword(s):  
Euro Area ◽  
Currency Union ◽  
Sudden Stops

scholarly journals Nominal exchange rates EUR/GRD and EUR/ITL in the context of leaving the euro zone by Greece and Italy

2021 ◽  
Vol 43 ◽  
pp. 293-316
Author(s):  
Katarzyna Dąbrowska-Gruszczyńska ◽  
◽  
Marcin Gruszczyński ◽  
Keyword(s):  
Exchange Rate ◽  
Exchange Rates ◽  
Euro Area ◽  
Structural Changes ◽  
Currency Union ◽  
Jel Classification ◽  
Euro Zone ◽  
Value Contribution ◽  
Nominal Exchange Rates ◽  
Shadow Exchange Rate

Aim/purpose – The aim of this paper is to present two cases of crises in Greece and Italy and to evaluate the shadow exchange rates of hypothetical new currencies (re)introduced after Grexit and Italexit. Design/methodology/approach – Both shadow exchange rates are estimated using speculative pressure index concept that emphasizes the importance of changes in foreign exchange reserves and interest rate differentials in the absence of an independent nomi- nal exchange rate. The research sample covers Greece in 1989-2020 and Italy in 1989- 2020. Findings – The research presented the estimation of shadow exchange rates EUR/GRD and EUR/ITL during the euro zone membership period. Leaving the euro area one can expect the following market rates: EUR/GRD 600 and EUR/ITL 1850. That would mean 75% depreciation and 5% appreciation to the current euro parities EUR/GRD 340.75, and EUR/ITL 1936.27, respectively. Research implications/limitations – After potential Grexit Greek authorities could expect significant nominal depreciation of a new currency (or should introduce it with a substantial discount). In the case of Italexit, the new currency would preserve its nomi- nal value. The limitations of the research methodology are: a long period of the analysis covers structural changes of financial markets, crisis events, political factors (e.g., QE programs). Originality/value/contribution – The originality of this approach lies in the combina- tion of two important economic concepts – the idea of shadow exchange rate and the index of speculative pressure. Combined together they help to prepare the methodology of shadow exchange rates evaluation for currencies that are currently in the common currency system (e.g., currency union). These results can help in economic and political discussions on effects of leaving the currency union. Keywords: nominal exchange rates, euro area, financial crises. JEL Classification: F21, F31, F37, F38, G15

scholarly journals Sudden Stops and Asset Purchase Programmes in the Euro Area

2021 ◽  
Vol 54 (3) ◽  
pp. 375-421
Author(s):  
Josefina Fabiani ◽  
Michael Fidora ◽  
Ralph Setzer ◽  
Andreas Westphal ◽  
Nico Zorell
Keyword(s):  
Direct Effect ◽  
Euro Area ◽  
Econometric Analysis ◽  
Sudden Stops ◽  
Sudden Stop ◽  
Before And After ◽  
Tentative Evidence

This paper analyses the incidence and severity of sudden stops in euro area countries before and after the introduction of the ECB’s asset purchase programmes. We define sudden stops as abrupt declines in private net financial inflows, i.e. total flows adjusted for EU and IMF loans and changes in TARGET2 balances. We document that sudden stop were more frequent and more severe in euro area countries compared to other OECD economies over the period 1999–2020. We find that the susceptibility of euro area countries to severe sudden stops mainly reflects domestic fundamentals whereas there is no clear evidence of an adverse direct effect of being part of the euro area. Moreover, our econometric analysis suggests that the ECB asset purchase programmes have overall almost halved the risk of severe sudden stops in euro area countries. We find tentative evidence that this effect operates through confidence channels.

scholarly journals Sudden Stops in the Euro Area

2012 ◽  
Vol 3 (3) ◽  
Author(s):  
Silvia Merler ◽  
Jean Pisani-Ferry
Keyword(s):  
Euro Area ◽  
Sudden Stops

scholarly journals Currency movements within and outside a currency union: The case of Germany and the euro area

2013 ◽  
Vol 53 (4) ◽  
pp. 393-401 ◽  
Author(s):  
Nikolaus Bartzsch ◽  
Gerhard Rösl ◽  
Franz Seitz
Keyword(s):  
Euro Area ◽  
Currency Union

On the Prospects of a Currency Union between the USA and the Euro Area

2006 ◽  
pp. 35-46
Author(s):  
A. Oleinov
Keyword(s):  
Exchange Rate ◽  
Theoretical Model ◽  
Monetary Union ◽  
Euro Area ◽  
Exchange Rate Regime ◽  
Currency Union ◽  
Flexible Exchange Rate ◽  
Direct Generalization ◽  
The Usa ◽  
Welfare Implications

The article examines the welfare implications of the USA and the Euro area joining a currency union as opposed to operating in a flexible exchange rate regime. The condition for the USA and Euro area to create a monetary union is derived from the Barro–Gorden model and the theoretical model of currency union proposed by A. Dixit that is a direct generalization of Barro–Gordon model. This condition is estimated on the USA and Euro area macroeconomic data from 1980 to 2004.

scholarly journals Sudden Stops and Asset Purchase Programmes in the Euro Area

2021 ◽  
Author(s):  
Josefina Fabiani ◽  
Michael Fidora ◽  
Ralph Setzer ◽  
Andreas Westphal ◽  
Nico Zorell
Keyword(s):  
Euro Area ◽  
Sudden Stops

Fund Surveillance Over Members of Currency Unions

Policy Papers ◽  
2005 ◽  
Vol 2005 (91) ◽  
Author(s):  
Keyword(s):  
Monetary Union ◽  
Euro Area ◽  
Currency Union ◽  
West African ◽  
Economic And Monetary Union ◽  
Currency Unions ◽  
Regional Institutions ◽  
Eastern Caribbean Currency Union ◽  
The Individual ◽  
The Eu

Effective Fund surveillance over the members of currency unions entails discussions at the regional level. This requirement derives from the fact that currency union members have devolved responsibility for policy areas that are central to Fund surveillance, notably monetary and exchange rate policies, to regional institutions. Discussions have been held for some time with regional institutions in the euro area, the Central African Economic and Monetary Union (CEMAC), the Eastern Caribbean Currency Union (ECCU), and the West African Economic and Monetary Union (WAEMU). However, only for the EU institutions responsible for euro area policies have these discussions been formalized as constituting an integral part of the Fund’s surveillance on the individual members of the currency union. At the conclusion of the 2004 biennial surveillance review, Directors called for formalization of discussions with regional institutions in the remaining currency unions: CEMAC, ECCU and WAEMU. This paper formalize the modalities of discussions with the regional institutions of these currency unions in the context of the Article IV consultations with the members of these currency unions.

Sign in / Sign up

Export Citation Format

Share Document