OP:17 Options for the Future Exchange Rate Policy of the EMU
Author(s): D K Begg, F Giavazzi, C Wyplosz
Publication Date: December 1997

Abstract: Although the title only refers to the 'Exchange Rate Policy' of the EMU, this Paper covers a broader set of issues: in particular it analyses in some detail the monetary and fiscal stance of the EMU. This is because a region's exchange rate is the outcome of that region's policy mix, and cannot be analysed independently of the mix of monetary and fiscal policy that the region's authorities implement. In this sense there is no such thing as an exchange rate policy per se. An inappropriate exchange rate is often the result of an inappropriate policy mix, and can only be corrected by changing the particular policy mix. Policy decisions regarding the exchange rate do arise, in connection with the choice of the 'exchange rate regime' (fix or flexible exchange rate, or target zones, etc.), or when analysing exchange market intervention, or the international role of a currency. Although these issues are discussed, they constitute a rather smaller portion of the overall Paper, since we believe that their relevance is minor when compared with the question of the policy mix.

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