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A Strategy for Launching the Euro

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  • Maurice Obstfeld

Abstract

This paper analyzes the constraints European Union law places on the 1 January 1999" choices of irrevocably fixed conversion rates between the Euro and the currencies of EMU" member states. Current EU legislation, notably the Maastricht treaty bilateral currency conversion factors implied by the 1 January 1999 choices equal closing" market exchange rates on 31 December 1998. Given that legal constraint several strategies for choosing the relative prices of EMU member currencies against the Euro. " Unfortunately, most of these have potentially damaging side effects. One approach official Stage 2 offers of contingent Euro forward contracts with value dates at the start of" Stage 3, allows a highly credible preannouncement of the bilateral currency conversion factors" to be set at the start of EMU. That approach assumes, however, that no prospective EMU" members can withdraw between their selection in May 1998 and the start of Stage 3."

Suggested Citation

  • Maurice Obstfeld, 1999. "A Strategy for Launching the Euro," NBER Working Papers 6233, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:6233
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    References listed on IDEAS

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    1. Paul De Grauwe & Luigi Spaventa, 2014. "Setting Conversion Rates for the Third Stage of EMU," World Scientific Book Chapters, in: Exchange Rates and Global Financial Policies, chapter 9, pages 253-268, World Scientific Publishing Co. Pte. Ltd..
    2. Masson,Paul R. & Taylor,Mark P. (ed.), 1993. "Policy Issues in the Operation of Currency Unions," Cambridge Books, Cambridge University Press, number 9780521434553, November.
    3. John Kareken & Neil Wallace, 1981. "On the Indeterminacy of Equilibrium Exchange Rates," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 96(2), pages 207-222.
    4. Kenneth A. Froot & Kenneth Rogoff, 1991. "The EMS, the EMU, and the Transition to a Common Currency," NBER Chapters, in: NBER Macroeconomics Annual 1991, Volume 6, pages 269-328, National Bureau of Economic Research, Inc.
    5. De Grauwe, Paul, 1997. "The Indeterminacy of the Euro Conversion Rates. Why it Matters and How it can be Solved," CEPR Discussion Papers 1677, C.E.P.R. Discussion Papers.
    6. repec:bla:scandj:v:78:y:1976:i:2:p:229-48 is not listed on IDEAS
    7. De Grauwe, Paul, 1996. "How to Fix Conversion Rates at the Start of EMU," CEPR Discussion Papers 1530, C.E.P.R. Discussion Papers.
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    Cited by:

    1. Costas N. Kanellopoulos, 2012. "The Size and structure of uninsured employment," Economic Bulletin, Bank of Greece, issue 37, pages 23-41, December.
    2. Paul De Grauwe & Luigi Spaventa, 2014. "Setting Conversion Rates for the Third Stage of EMU," World Scientific Book Chapters, in: Exchange Rates and Global Financial Policies, chapter 9, pages 253-268, World Scientific Publishing Co. Pte. Ltd..
    3. Wilfling, Bernd, 2009. "Volatility regime-switching in European exchange rates prior to monetary unification," Journal of International Money and Finance, Elsevier, vol. 28(2), pages 240-270, March.
    4. repec:bla:germec:v:4:y:2003:i::p:433-457 is not listed on IDEAS
    5. Obstfeld, Maurice, 1998. "EMU: Ready, or Not?," Center for International and Development Economics Research, Working Paper Series qt8qn3v8j3, Center for International and Development Economics Research, Institute for Business and Economic Research, UC Berkeley.
    6. Jean-Sébastien Pentecôte & Marc-Alexandre Sénégas, 2003. "Comment fixer les cours de change?. Annonces et correspondances maastrichtiennes," Recherches économiques de Louvain, De Boeck Université, vol. 69(1), pages 39-71.
    7. Mark Trede & Bernd Wilfling, 2007. "Estimating exchange rate dynamics with diffusion processes: an application to Greek EMU data," Empirical Economics, Springer, vol. 33(1), pages 23-39, July.
    8. Charles Wyplosz, 1997. "EMU: Why and How It Might Happen," Journal of Economic Perspectives, American Economic Association, vol. 11(4), pages 3-21, Fall.
    9. Ioana Laura Valeanu, 2012. "Challenges Of The Economic And Monetary Union In The Context Of The Economic Crisis," CES Working Papers, Centre for European Studies, Alexandru Ioan Cuza University, vol. 4(4), pages 866-877, December.
    10. repec:jes:wpaper:y:2012:v:4:p:866-877 is not listed on IDEAS
    11. Siebert, Horst, 1998. "Die Europäische Währungsunion: was zu tun und was zu lassen ist," Kiel Working Papers 854, Kiel Institute for the World Economy (IfW Kiel).
    12. repec:lic:licosd:10301 is not listed on IDEAS
    13. Petros M. Migiakis, 2012. "Reviewing the proposals for common bond issuances by the euro-area sovereign under a long-term perspective," Economic Bulletin, Bank of Greece, issue 37, pages 43-54, December.
    14. Kaikati, Jack G., 1999. "The Euro versus the U.S. dollar: an overview," Journal of World Business, Elsevier, vol. 34(2), pages 171-192, July.
    15. Peter B. Kenen, 2000. "Comment on "Is Launching the Euro Unstable in the Endgame?"," NBER Chapters, in: Currency Crises, pages 177-181, National Bureau of Economic Research, Inc.
    16. Zacharias Bragoudakis & Dimitrios Sideris, 2012. "Do retail gasoline prices adjust symmetrically to crude oil price changes? the case of the Greek oil market," Economic Bulletin, Bank of Greece, issue 37, pages 7-21, December.
    17. Syllignakis, Manolis N. & Kouretas, Georgios P., 2011. "Markov-switching regimes and the monetary model of exchange rate determination: Evidence from the Central and Eastern European markets," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 21(5), pages 707-723.
    18. De Grauwe, Paul & Dewachter, Hans & Veestraeten, Dirk, 1999. "Price dynamics under stochastic process switching: some extensions and an application to EMU1," Journal of International Money and Finance, Elsevier, vol. 18(2), pages 195-224, February.

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    More about this item

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions

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