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Belke, Ansgar
Setzer, Ralph
Year of Publication: 
Series/Report no.: 
CESifo Working Paper 1056
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. This paper takes a different approach and highlights the fact that high exchange rate volatility may as well signal high costs for labor markets. The impact of exchange rate volatility on labor markets in the CEECs is analyzed, finding that volatility vis-à-vis the euro significantly lowers employment growth. Hence, the elimination of exchange rate volatility could be considered as a substitute for a removal of employment protection legislation.
Central and Eastern Europe
currency union
exchange rate variability
job creation
Document Type: 
Working Paper

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