The main aim of this paper is to shed light on the question of whether the move to European Monetary Union (EMU) will make the euro more or less variable than a comparator basket of the present currencies of the countries that participate in EMU. The answer is shown to depend on the relative importance of different types of shocks, on both the sizes and the patterns of specialization of the EMU countries, and on the weights used in defining the comparator basket: for baskets based on country-size or trade weights, EMU is likely to decrease (increase) exchange rate variability for shocks to the industry in which large (small) EMU countries are specialized
Bibliography
Includes bibliographical references (pages 26-27)
Notes
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