DP1530 | How to Fix Conversion Rates at the Start of EMU

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30/11/1996

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Abstract

This paper analyses several procedures for fixing conversion rates at the start of EMU. One consists of announcing a fixed conversion rate; a second (proposed by Lalmfalussy) would announce that the conversion rate will be an average of past market exchange rates; and a third involves announcing that the market exchange rate observed just prior to entry will be the conversion rate. The paper evaluates these different procedures and concludes that the Lamfalussy rule is unattractive compared to the two other alternatives.