Implications of EMU for Exchange Rate Policy in Central and Eastern Europe
January 1, 1999
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Summary
In view of the requirements of Stage 2 of European Monetary Union (EMU) for accession to the European Union, this paper examines the desirability for, and the ability of, the lead candidates in Central and Eastern Europe to participate in the new exchange rate mechanism (ERM2) and eventually in EMU. For most of these countries the benefits are likely to outweigh the cost of participation. After successfully meeting the basic conditions (wage flexibility, prudent fiscal and monetary stance, financial system soundness) for ERM2, each candidate should be able to shadow the euro, with sufficient flexibility around the central rate, prior to formal participation. The paper concludes with a discussion of two policy dilemmas.
Subject: Currencies, Exchange rate arrangements, Exchange rate policy, Exchange rates, Financial services, Fiscal stance, Foreign exchange, Money, Short term interest rates
Keywords: Asia and Pacific, Central and Eastern Europe, crawling peg, Currencies, current account, Eastern Europe, Europe, Exchange rate arrangements, Exchange rate policy, Exchange rates, hard currency, international monetary arrangements, lead accession countries, managed float, nominal rate, risk premium, Short term interest rates, Southeast Asia, stabilization program, transition economies, WP
Pages:
41
Volume:
1999
DOI:
Issue:
009
Series:
Working Paper No. 1999/009
Stock No:
WPIEA0091999
ISBN:
9781451842579
ISSN:
1018-5941
