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

EMU, The Euro and The European Policy Mix

One year ago most economic observers predicted that "fundamentals" were such that the euro was set to appreciate. In the event, the opposite has occurred. This has rekindled a debate on how well foreign exchange markets reflect fundamental determinants and led to calls for greater exchange rate stability, possibly through the introduction of formal exchange rate target zones. The first part of the paper focuses on these issues. It also looks at the euro’s prospects as an international currency. To give a better sense of perspective, the paper compares recent exchange rate movements and measures of volatility with longerterm trends. The article argues that the difference in cyclical conditions in the United States and the euro area seems to have been a dominant factor driving the sizeable euro depreciation since early 1999, although when evaluated against longer term trends it appears much less dramatic; the euro is presently at about its past 5-year average level expressed in nominal effective terms ...


Keywords: exchange rate regimes, exchange rates, policy mix, EMU
JEL: E44: Macroeconomics and Monetary Economics / Money and Interest Rates / Financial Markets and the Macroeconomy; F31: International Economics / International Finance / Foreign Exchange
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