IDEAS home Printed from https://ideas.repec.org/a/bla/metroe/v69y2018i4p737-767.html
   My bibliography  Save this article

Dealing with the consequences of exchange rate misalignments for macroeconomic adjustments in the EMU

Author

Listed:
  • Vincent Duwicquet
  • Jacques Mazier
  • Jamel Saadaoui

Abstract

The euro crisis sheds light on the nature of alternative adjustment mechanisms in the EMU. This article examines the exchange rate misalignments within the euro zone, using a FEER approach. To explore the consequences of these misalignments, we use an open economy SFC model with endogenous interest rates and Eurobonds. Facing a competitiveness loss in southern countries due to misalignments, three sets of alternative economic policy are investigated: a policy‐mix based on tax rebates to improve competitiveness; an increase in intra‐European financing by banks of northern countries; and an issuance of Eurobonds to pool European sovereign debt.

Suggested Citation

  • Vincent Duwicquet & Jacques Mazier & Jamel Saadaoui, 2018. "Dealing with the consequences of exchange rate misalignments for macroeconomic adjustments in the EMU," Metroeconomica, Wiley Blackwell, vol. 69(4), pages 737-767, November.
    • Handle: RePEc:bla:metroe:v:69:y:2018:i:4:p:737-767
    DOI: 10.1111/meca.12211
    as

    Download full text from publisher

    File URL: https://doi.org/10.1111/meca.12211
    Download Restriction: no
    File URL: https://libkey.io/10.1111/meca.12211?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Stefanos Ioannou, 2018. "Sovereign ratings, macroeconomic dynamics, and fiscal policy. Interactions within a stock flow consistent framework," Metroeconomica, Wiley Blackwell, vol. 69(1), pages 151-177, February.
    2. Jacques Mazier & Vincent Duwicquet & Jamel Saadaoui, 2013. "Désajustements de change, fédéralisme budgétaire et redistribution: comment s'ajuster en union monétaire?," Post-Print hal-01367464, HAL.
    3. Vincent Duwicquet & Jacques Mazier & Jamel Saadaoui, 2013. "Désajustements de change, fédéralisme budgétaire et redistribution. Comment s'ajuster en union monétaire," Revue de l'OFCE, Presses de Sciences-Po, vol. 0(1), pages 57-96.
    4. William R. Cline & John Williamson, 2012. "Updated Estimates of Fundamental Equilibrium Exchange Rates," Policy Briefs PB12-23, Peterson Institute for International Economics.
    5. Virginie Coudert & Cécile Couharde & Valérie Mignon, 2013. "On Currency Misalignments within the Euro Area," Review of International Economics, Wiley Blackwell, vol. 21(1), pages 35-48, February.
    6. Donggyu Sul & Peter C. B. Phillips & Chi‐Young Choi, 2005. "Prewhitening Bias in HAC Estimation," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 67(4), pages 517-546, August.
    7. Rebecca L Driver & Peter F Westaway, 2005. "Concepts of equilibrium exchange rates," Bank of England working papers 248, Bank of England.
    8. Mr. Jarkko Turunen & Mr. Richard T. Harmsen & Mr. Tamim Bayoumi, 2011. "Euro Area Export Performance and Competitiveness," IMF Working Papers 2011/140, International Monetary Fund.
    9. Joakim Westerlund, 2008. "Panel cointegration tests of the Fisher effect," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 23(2), pages 193-233.
    10. Wynne Godley & Marc Lavoie, 2012. "A Simple Model of Three Economies with Two Currencies: The Eurozone and the USA," Palgrave Macmillan Books, in: Marc Lavoie & Gennaro Zezza (ed.), The Stock-Flow Consistent Approach, chapter 7, pages 159-188, Palgrave Macmillan.
    11. Jamel Saadaoui, 2017. "Internal Devaluations and Equilibrium Exchange Rates: New Evidences and Perspectives for the EMU," Post-Print hal-02169131, HAL.
    12. Vincent Duwicquet & Jacques Mazier, 2010. "Financial integration and macroeconomic adjustments in a monetary union," Journal of Post Keynesian Economics, Taylor & Francis Journals, vol. 33(2), pages 333-370, January.
    13. Olivier Blanchard & Gian Maria Milesi-Ferretti, 2012. "(Why) Should Current Account Balances Be Reduced?," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 60(1), pages 139-150, April.
    14. Whitney K. Newey & Kenneth D. West, 1994. "Automatic Lag Selection in Covariance Matrix Estimation," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 61(4), pages 631-653.
    15. Paul Davidson, 2007. "The Future of the International Financial System," Palgrave Macmillan Books, in: Interpreting Keynes for the 21st Century, chapter 4, pages 55-63, Palgrave Macmillan.
    16. Mr. Peter Isard & Mr. Hamid Faruqee, 1998. "Exchange Rate Assessment: Extension of the Macroeconomic Balance Approach," IMF Occasional Papers 1998/012, International Monetary Fund.
    17. Saadaoui, Jamel, 2015. "Global imbalances: Should we use fundamental equilibrium exchange rates?," Economic Modelling, Elsevier, vol. 47(C), pages 383-398.
    18. Vincent Duwicquet & Jacques Mazier & Jamel Saadaoui, 2015. "Interest Rates, Eurobonds and Intra-European Exchange Rate Misalignments: the Challenge of Sustainable Adjustments in the Eurozone," Working Papers of BETA 2015-03, Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg.
    19. John Williamson, 2006. "A worldwide system of reference rates," International Economics and Economic Policy, Springer, vol. 3(3), pages 341-352, December.
    20. Jamel Saadaoui, 2017. "Internal Devaluations and Equilibrium Exchange Rates: New Evidences and Perspectives for the EMU," Working Papers halshs-01633389, HAL.
    21. Josep Lluís Carrion-i-Silvestre & Tomás del Barrio-Castro & Enrique López-Bazo, 2005. "Breaking the panels: An application to the GDP per capita," Econometrics Journal, Royal Economic Society, vol. 8(2), pages 159-175, July.
    22. Jamel Saadaoui, 2015. "Global imbalances: Should we use fundamental equilibrium exchange rates?," Post-Print hal-01397567, HAL.
    23. Asdrubali, Pierfederico & Kim, Soyoung, 2004. "Dynamic risksharing in the United States and Europe," Journal of Monetary Economics, Elsevier, vol. 51(4), pages 809-836, May.
    24. Andrews, Donald W K, 1991. "Heteroskedasticity and Autocorrelation Consistent Covariance Matrix Estimation," Econometrica, Econometric Society, vol. 59(3), pages 817-858, May.
    25. Storm, Servaas & Naastepad, C. W. M., 2012. "Macroeconomics Beyond the NAIRU," Economics Books, Harvard University Press, number 9780674062276, Spring.
    26. Jamel Saadaoui, 2018. "Internal Devaluations and Equilibrium Exchange Rates: new evidences and perspectives for the EMU," Applied Economics, Taylor & Francis Journals, vol. 50(59), pages 6364-6381, December.
    27. Jamel Saadaoui, 2017. "Internal Devaluations and Equilibrium Exchange Rates: New Evidences and Perspectives for the EMU," CEPN Working Papers halshs-01633389, HAL.
    28. Jacques Mazier & Sebastian Valdecantos, 2015. "A multi-speed Europe: is it viable? A stock-flow consistent approach," Post-Print hal-01367461, HAL.
    29. Jacques Mazier & Sophie Saglio, 2008. "Interdependency and adjustments in the European Union," International Review of Applied Economics, Taylor & Francis Journals, vol. 22(1), pages 17-44.
    30. William R. Cline & John Williamson, 2012. "Estimates of Fundamental Equilibrium Exchange Rates, May 2012," Policy Briefs PB12-14, Peterson Institute for International Economics.
    31. repec:hal:cepnwp:hal-01295438 is not listed on IDEAS
    32. Andrews, Donald W K & Monahan, J Christopher, 1992. "An Improved Heteroskedasticity and Autocorrelation Consistent Covariance Matrix Estimator," Econometrica, Econometric Society, vol. 60(4), pages 953-966, July.
    33. John Williamson, 2004. "The strange history of the Washington consensus," Journal of Post Keynesian Economics, Taylor & Francis Journals, vol. 27(2), pages 195-206.
    34. Jacques Mazier & Sebastian Valdecantos, 2015. "A multi-speed Europe: is it viable? A stock-flow consistent approach," European Journal of Economics and Economic Policies: Intervention, Edward Elgar Publishing, vol. 12(1), pages 93-112, April.
    35. Vincent Duwicquet & Jacques Mazier & Jamel Saadaoui, 2016. "Interest rates, Eurobonds and intra-European exchange rate misalignments," Post-Print hal-01359820, HAL.
    36. Wynne Godley & Marc Lavoie, 2006. "Comprehensive accounting in simple open economy macroeconomics with endogenous sterilization or flexible exchange rates," Journal of Post Keynesian Economics, M.E. Sharpe, Inc., vol. 28(2), pages 241-276, January.
    37. Mr. Ronald MacDonald & Mr. Peter B. Clark, 1998. "Exchange Rates and Economic Fundamentals: A Methodological Comparison of BEERs and FEERs," IMF Working Papers 1998/067, International Monetary Fund.
    38. Mr. Luca A Ricci & Mr. Jonathan David Ostry & Mr. Jaewoo Lee & Mr. Alessandro Prati & Mr. Gian M Milesi-Ferretti, 2008. "Exchange Rate Assessments: CGER Methodologies," IMF Occasional Papers 2008/002, International Monetary Fund.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Lorenzo Nalin & Giuliano Toshiro Yajima, 2021. "Commodities fluctuations, cross border flows and financial innovation: A stock‐flow analysis," Metroeconomica, Wiley Blackwell, vol. 72(3), pages 539-579, July.
    2. Ramos-Herrera María del Carmen, 2022. "How Equilibrium Exchange Rate Misalignments Influence on Economic Growth? Evidence for European Countries," Economics - The Open-Access, Open-Assessment Journal, De Gruyter, vol. 16(1), pages 199-211, January.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Saadaoui, Jamel, 2012. "Déséquilibres globaux, taux de change d’équilibre et modélisation stock-flux cohérente [Global Imbalances, Equilibrium Exchange Rates and Stock-Flow Consistent Modelling]," MPRA Paper 51332, University Library of Munich, Germany.
    2. Vincent Duwicquet & Jacques Mazier & Pascal Petit & Jamel Saadaoui, 2015. "The Future of the Euro," Post-Print hal-01399157, HAL.
      • Duwicquet, Vincent & Mazier, Jacques & Petit, Pascal & Saadaoui, Jamel, 2015. "The future of the euro," MPRA Paper 67690, University Library of Munich, Germany.
    3. Ramos-Herrera María del Carmen, 2022. "How Equilibrium Exchange Rate Misalignments Influence on Economic Growth? Evidence for European Countries," Economics - The Open-Access, Open-Assessment Journal, De Gruyter, vol. 16(1), pages 199-211, January.
    4. Vincent Duwicquet & Jacques Mazier & Jamel Saadaoui, 2013. "Désajustements de change, fédéralisme budgétaire et redistribution. Comment s'ajuster en union monétaire," Revue de l'OFCE, Presses de Sciences-Po, vol. 0(1), pages 57-96.
    5. Vincent Duwicquet & Jacques Mazier & Jamel Saadaoui, 2016. "Interest rates, Eurobonds and intra-European exchange rate misalignments," Post-Print hal-01359820, HAL.
    6. Vincent Duwicquet & Jacques Mazier & Jamel Saadaoui, 2015. "Interest Rates, Eurobonds and Intra-European Exchange Rate Misalignments: the Challenge of Sustainable Adjustments in the Eurozone," Working Papers of BETA 2015-03, Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg.
    7. repec:hal:cepnwp:hal-01295438 is not listed on IDEAS
    8. Duwicquet, Vincent & Mazier, Jacques & Saadaoui, Jamel, 2012. "Exchange Rate Misalignments, Fiscal Federalism and Redistribution: How to Adjust in a Monetary Union," MPRA Paper 48697, University Library of Munich, Germany.
    9. Saadaoui, Jamel, 2015. "Global imbalances: Should we use fundamental equilibrium exchange rates?," Economic Modelling, Elsevier, vol. 47(C), pages 383-398.
    10. Jamel Saadaoui, 2017. "Internal Devaluations and Equilibrium Exchange Rates: New Evidences and Perspectives for the EMU," CEPN Working Papers halshs-01633389, HAL.
    11. Vincent Duwicquet & Jacques Mazier & Jamel Saadaoui, 2014. "Interest rates, eurobonds and intra-European exchange rate misalignments: the challenge of sustainable adjustments in the eurozone," Working Papers halshs-01089208, HAL.
    12. Jamel Saadaoui, 2016. "Post-Brexit FEER," Working Papers of BETA 2016-51, Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg.
    13. Jamel Saadaoui, 2016. "Post-Brexit FEER," Working Papers hal-01394814, HAL.
    14. Vincent Duwicquet & Jacques Mazier & Jamel Saadaoui, 2014. "Interest rates, eurobonds and intra-European exchange rate misalignments: the challenge of sustainable adjustments in the eurozone," CEPN Working Papers halshs-01089208, HAL.
    15. Jamel Saadaoui, 2017. "Internal Devaluations and Equilibrium Exchange Rates: New Evidences and Perspectives for the EMU," Working Papers halshs-01633389, HAL.
    16. Vincent Duwicquet & Jacques Mazier & Jamel Saadaoui, 2012. "Exchange Rate Misalignments, Fiscal Federalism and Redistribution," Post-Print hal-02169241, HAL.
    17. repec:hal:cepnwp:hal-01394814 is not listed on IDEAS
    18. Se-Eun Jeong & Jacques Mazier & Jamel Saadaoui, 2010. "Exchange Rate Misalignments at World and European Levels: a FEER Approach," International Economics, CEPII research center, issue 121, pages 25-58.
    19. Roberto Veneziani & Luca Zamparelli & Michalis Nikiforos & Gennaro Zezza, 2017. "Stock-Flow Consistent Macroeconomic Models: A Survey," Journal of Economic Surveys, Wiley Blackwell, vol. 31(5), pages 1204-1239, December.
    20. Alessandro Caiani & Ermanno Catullo & Mauro Gallegati, 2018. "The effects of fiscal targets in a monetary union: a multi-country agent-based stock flow consistent model," Industrial and Corporate Change, Oxford University Press and the Associazione ICC, vol. 27(6), pages 1123-1154.
    21. Coulibaly, Issiaka & Gnimassoun, Blaise, 2013. "Optimality of a monetary union: New evidence from exchange rate misalignments in West Africa," Economic Modelling, Elsevier, vol. 32(C), pages 463-482.
    22. Makram El-Shagi & Axel Lindner & Gregor von Schweinitz, 2016. "Real Effective Exchange Rate Misalignment in the Euro Area: A Counterfactual Analysis," Review of International Economics, Wiley Blackwell, vol. 24(1), pages 37-66, February.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bla:metroe:v:69:y:2018:i:4:p:737-767. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: http://www.blackwellpublishing.com/journal.asp?ref=0026-1386 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.