Fixed exchange rates with escape clauses: The political determinants of the European Monetary System realignments

Bodea, Cristina

doi:10.1016/j.ejpoleco.2015.03.007

Cited by 6 publications

(2 citation statements)

References 43 publications

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“…With a floating exchange rate, a country with weak coordination could try to offset a real exchange rate appreciation with a depreciation of the nominal exchange rate. Fixed exchange rate regimes, including currency unions, could therefore be responsible for persistent deficits by preventing adjustment of the current account, even if they contain escape clauses that provide for the possibility of external adjustment (see e.g., Bodea, 2015). The literature on the euro crisis, therefore, highlights the difficulty of eurozone countries to adjust externally in case of external disequilibrium and sees the currency union as a primary cause of growing intra-European imbalances during the first decade of the euro (Johnston et al, 2014).…”

Section: Theorymentioning

confidence: 99%

The Origins of Persistent Current Account Imbalances in the Post-Bretton Woods Era

Manger

Sattler

2019

Comparative Political Studies

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Why do some countries run persistent current account surpluses? Why do others run deficits, often over decades, leading to enduring global imbalances? Such persistent imbalances are the root cause of many financial crises and a major source of international economic conflict. We propose that differences in wage-bargaining institutions explain a large share of imbalances through their effect on the trade balance. In countries with coordinated wage bargaining, wage growth in export industries can be restrained to ensure competitiveness, leading to persistent trade surpluses. We estimate the contribution of these institutions to trade balances in Organisation for Economic Co-operation and Development (OECD) member countries since 1977 and find ample support for our hypothesis. Contrary to much of the literature, the choice of fixed or floating exchange rate regimes has only a small effect on trade or current account balances. In other words, internal adjustment in surplus countries via wage-bargaining institutions trumps external adjustment by deficit countries.

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Section: Theorymentioning

confidence: 99%

The Origins of Persistent Current Account Imbalances in the Post-Bretton Woods Era

Manger

Sattler

2019

Comparative Political Studies

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“…The results for developed countries show that leftwing governments were more likely to have flexible exchange rates than rightwing governments. Bodea (2015) examines whether government ideology influenced European Monetary System (EMS) realignments vis-à-vis the German currency. The sample includes nine EMS countries over the period 1979-1993.…”

Section: Othersmentioning

confidence: 99%