The Sustainability of Monetary Unions. Can the Euro Survive? Abstract:This paper aims to propose a new measure of exchange marke

Canofari PaoloMarini GiancarloPiersanti Giovanni
CEIS Research Paper
This paper aims to propose a new measure of exchange market pressure for countries operating in hard peg regimes, such as currency unions, currency boards or full dollarization. We use a general model of currency crisis to derive a sustainability index based upon the relationship between the shadow exchange rate and the output gap required to maintain the currency peg. We apply the new index to European Union countries in order to assess the sustainability of the Euro.
Number: 226
Keywords: shadow exchange rate, currency crisis, exchange market pressure
JEL codes: F3;F31;F41;G01
Date: Tuesday, March 27, 2012
Revision Date: Tuesday, March 27, 2012