OECD Economics Department Working Papers

Working papers from the Economics Department of the OECD that cover the full range of the Department’s work including the economic situation, policy analysis and projections; fiscal policy, public expenditure and taxation; and structural issues including ageing, growth and productivity, migration, environment, human capital, housing, trade and investment, labour markets, regulatory reform, competition, health, and other issues.

The views expressed in these papers are those of the author(s) and do not necessarily reflect those of the OECD or of the governments of its member countries.

English, French

Adjustment under Fixed Exchange Rates

Application to the European Monetary Union

The increasing, and ultimately complete, fixity of exchange rates between countries entering into the European Monetary Union (EMU) throws the burden of adjustment onto labour and product markets. At present, most countries adhering to the exchange rate mechanism of the EMS have relatively rigid labour markets, implying that, in the absence of structural reform, some countries may experience higher unemployment in moving towards the low inflation rates and modest deficit levels that are prerequisites for entering EMU. Given the limited availability of macroeconomic tools, some pressures to discriminate against imports from non-EC countries may emerge. Even after EMU, remaining differences in industrial and trading structures as well as in the supply and demand shocks experienced by individual Member countries will impose some need for localised adjustment. The relative wage and price changes involved in such adjustments may have disruptive effects on income and employment if labour ...


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