Faculty of Economics and Business Administration Publications Database

Exchange Rate Movements and Employment Growth: An OCA Assessment of the CEE Economies

Belke, Ansgar
Volume: 31
Pages: 247 - 280
Month: June
Link External Source: Online Version
Year: 2004

According to the traditional “optimum currency area” approach, not much will be lost from a very hard peg to a currency union if there has been little reason for variations in the exchange rate in the past. This paper takes a different approach and highlights the fact that high exchange rate volatility may also signal high costs for labor markets. The impact of exchange rate volatility on labor markets in the CEECs is analyzed, revealing that volatility vis-à-vis the euro significantly lowers employment growth. Hence, eliminating exchange rate volatility could be considered a substitute for removing employment protection legislation. Copyright Kluwer Academic Publishers 2004.