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The Theory Of Optimum Currency Areas And Growth In Emerging Markets

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Executive Summary

The authors test for the impact of exchange rate volatility on growth in emerging market economies based on the theory of optimum currency areas. The findings provide evidence for a positive impact of exchange rate stability on growth. The 1997/98 Asian crisis and the obligation of 12 new EU member states to join the European Monetary Union have triggered a controversial discussion about the costs and benefits of stable exchange rates in emerging market economies. Because the theoretical literature on the impact of fixed exchange rates on the growth performance of emerging market economies has not provided clear evidence, the answer to this question has remained an empirical matter.

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