Labor Market Implications of Switching the Currency Peg in a General Equilibrium Model for Lithuania
On February 2, 2002, Lithuania switched its currency anchor from the dollar to the euro. While pegging to the dollar (since April 1994) has proven successful throughout the transition years, the recent decision to peg to the euro was motivated by t...
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| Format: | Policy Research Working Paper |
| Language: | English en_US |
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World Bank, Washington, D.C.
2013
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| Online Access: | http://documents.worldbank.org/curated/en/2002/04/1775829/labor-market-implications-switching-currency-peg-general-equilibrium-model-lithuania http://hdl.handle.net/10986/14286 |
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okr-10986-142862021-04-23T14:03:20Z Labor Market Implications of Switching the Currency Peg in a General Equilibrium Model for Lithuania Pizzati, Lodovico AGGREGATE CONSUMPTION AGGREGATE DEMAND AGGREGATE EXPORTS AGGREGATE IMPORTS AGRICULTURE AIC BALANCE OF PAYMENTS BALANCE SHEET BANKING SECTOR CAPITAL ACCUMULATION CAPITAL EMPLOYED CAPITAL INTENSIVE PRODUCTION CAPITAL STOCK CENTRAL BANK COMMERCIAL BANKS CPI CURRENCY CURRENCY PEGS CURRENT ACCOUNT DEBT DEFICIT FINANCING DEFICITS DEMAND FOR GOODS DEPOSITS DOLLAR TERMS DOMESTIC DEMAND DOMESTIC MARKET DOMESTIC PRODUCTION ECONOMIC ACTIVITY ECONOMIC DEVELOPMENT ECONOMIC GROWTH ELASTICITY ELASTICITY OF SUBSTITUTION EMPLOYMENT ENDOGENOUS VARIABLES EQUATIONS EQUILIBRIUM EURO EXCHANGE RATE EXCHANGE RATE MOVEMENTS EXCHANGE RATE POLICY EXCHANGE RATE REGIME EXCHANGE RATES EXOGENOUS VARIABLES EXPENDITURES EXPORT PRICE EXPORT SUBSIDIES EXPORT SUPPLY EXPORTS EXTERNAL SHOCKS FINANCIAL CRISIS FISCAL POLICY FOREIGN DIRECT INVESTMENT FOREIGN MARKETS FOREIGN PRODUCTS GDP GENERAL EQUILIBRIUM ANALYSIS GENERAL EQUILIBRIUM MODEL GENERAL EQUILIBRIUM MODELING GOVERNMENT EXPENDITURES HIGH UNEMPLOYMENT IMPORT FUNCTION IMPORT PRICES IMPORT TARIFF IMPORT TARIFFS IMPORTS INCOME INCOME TAXES INFLATION INTEREST RATE INTERMEDIATE GOODS INTERMEDIATE INPUTS INVESTMENT FLOWS LABOR COSTS LABOR FORCE MACROECONOMIC POLICY MINIMUM WAGE MONETARY POLICY MONEY SUPPLY NATURAL RESOURCES OIL OIL IMPORTS OIL REFINERIES OUTPUT PEGS PRICE INCREASES PRICE STABILITY PRIMARY GOODS PRODUCTION FUNCTION PUBLIC ENTERPRISES PUBLIC SERVICES QUOTAS RESERVES SALES TAXES SAVINGS STABILIZATION STABILIZATION PROGRAMS TARIFF REVENUES TAX REFORM TAX REVENUES TRADE AREA TRADE DEFICIT TRADE FLOWS TRADE PATTERNS TRADE POLICY TRANSITION ECONOMIES UNEMPLOYMENT UNEMPLOYMENT RATE UNSKILLED LABOR UNSKILLED WORKERS VOLATILITY VULNERABILITY WAGE RATE WAGES WORLD MARKETS MACROECONOMIC POLICY TRADE RELATIONS EXCHANGE RATE STABILITY EXCHANGE RATE ADJUSTMENTS DOLLAR STANDARD EURO-DOLLAR MARKET On February 2, 2002, Lithuania switched its currency anchor from the dollar to the euro. While pegging to the dollar (since April 1994) has proven successful throughout the transition years, the recent decision to peg to the euro was motivated by the increasing trade relations with European economies. Pizzati does not argue which peg is more appropriate, but he analyzes the implications of changing the exchange rate regime for different sectors and labor groups. While pegging to the euro entails more stability for the export sector, Lithuania is still dependent on dollar-based imports of primary goods from the Commonwealth of Independent States, more so than other Baltic countries or Central European economies. The author uses a multisector general equilibrium model to compare the effects of dollar-euro exchange rate movements under these alternative pegs. Overall, simulation results suggest that while a euro-peg will provide more stability to GDP and employment, it will also imply more volatility in prices, suggesting that under the new peg macroeconomic policy should be more concerned with inflationary pressures than before. From a sector-specific perspective, pegging to the euro will provide a more stable demand for unskilled-intensive manufacturing and commercial services. But other sectors, such as agriculture, will still face the same vulnerability to exchange rate movements. This suggests that additional policy measures may be needed to compensate sector-specific divergences. 2013-06-28T12:59:54Z 2013-06-28T12:59:54Z 2002-04 http://documents.worldbank.org/curated/en/2002/04/1775829/labor-market-implications-switching-currency-peg-general-equilibrium-model-lithuania http://hdl.handle.net/10986/14286 English en_US Policy Research Working Paper;No.2830 CC BY 3.0 IGO http://creativecommons.org/licenses/by/3.0/igo/ World Bank World Bank, Washington, D.C. Publications & Research :: Policy Research Working Paper Publications & Research Europe Lithuania |
| repository_type |
Digital Repository |
| institution_category |
Foreign Institution |
| institution |
Digital Repositories |
| building |
World Bank Open Knowledge Repository |
| collection |
World Bank |
| language |
English en_US |
| topic |
AGGREGATE CONSUMPTION AGGREGATE DEMAND AGGREGATE EXPORTS AGGREGATE IMPORTS AGRICULTURE AIC BALANCE OF PAYMENTS BALANCE SHEET BANKING SECTOR CAPITAL ACCUMULATION CAPITAL EMPLOYED CAPITAL INTENSIVE PRODUCTION CAPITAL STOCK CENTRAL BANK COMMERCIAL BANKS CPI CURRENCY CURRENCY PEGS CURRENT ACCOUNT DEBT DEFICIT FINANCING DEFICITS DEMAND FOR GOODS DEPOSITS DOLLAR TERMS DOMESTIC DEMAND DOMESTIC MARKET DOMESTIC PRODUCTION ECONOMIC ACTIVITY ECONOMIC DEVELOPMENT ECONOMIC GROWTH ELASTICITY ELASTICITY OF SUBSTITUTION EMPLOYMENT ENDOGENOUS VARIABLES EQUATIONS EQUILIBRIUM EURO EXCHANGE RATE EXCHANGE RATE MOVEMENTS EXCHANGE RATE POLICY EXCHANGE RATE REGIME EXCHANGE RATES EXOGENOUS VARIABLES EXPENDITURES EXPORT PRICE EXPORT SUBSIDIES EXPORT SUPPLY EXPORTS EXTERNAL SHOCKS FINANCIAL CRISIS FISCAL POLICY FOREIGN DIRECT INVESTMENT FOREIGN MARKETS FOREIGN PRODUCTS GDP GENERAL EQUILIBRIUM ANALYSIS GENERAL EQUILIBRIUM MODEL GENERAL EQUILIBRIUM MODELING GOVERNMENT EXPENDITURES HIGH UNEMPLOYMENT IMPORT FUNCTION IMPORT PRICES IMPORT TARIFF IMPORT TARIFFS IMPORTS INCOME INCOME TAXES INFLATION INTEREST RATE INTERMEDIATE GOODS INTERMEDIATE INPUTS INVESTMENT FLOWS LABOR COSTS LABOR FORCE MACROECONOMIC POLICY MINIMUM WAGE MONETARY POLICY MONEY SUPPLY NATURAL RESOURCES OIL OIL IMPORTS OIL REFINERIES OUTPUT PEGS PRICE INCREASES PRICE STABILITY PRIMARY GOODS PRODUCTION FUNCTION PUBLIC ENTERPRISES PUBLIC SERVICES QUOTAS RESERVES SALES TAXES SAVINGS STABILIZATION STABILIZATION PROGRAMS TARIFF REVENUES TAX REFORM TAX REVENUES TRADE AREA TRADE DEFICIT TRADE FLOWS TRADE PATTERNS TRADE POLICY TRANSITION ECONOMIES UNEMPLOYMENT UNEMPLOYMENT RATE UNSKILLED LABOR UNSKILLED WORKERS VOLATILITY VULNERABILITY WAGE RATE WAGES WORLD MARKETS MACROECONOMIC POLICY TRADE RELATIONS EXCHANGE RATE STABILITY EXCHANGE RATE ADJUSTMENTS DOLLAR STANDARD EURO-DOLLAR MARKET |
| spellingShingle |
AGGREGATE CONSUMPTION AGGREGATE DEMAND AGGREGATE EXPORTS AGGREGATE IMPORTS AGRICULTURE AIC BALANCE OF PAYMENTS BALANCE SHEET BANKING SECTOR CAPITAL ACCUMULATION CAPITAL EMPLOYED CAPITAL INTENSIVE PRODUCTION CAPITAL STOCK CENTRAL BANK COMMERCIAL BANKS CPI CURRENCY CURRENCY PEGS CURRENT ACCOUNT DEBT DEFICIT FINANCING DEFICITS DEMAND FOR GOODS DEPOSITS DOLLAR TERMS DOMESTIC DEMAND DOMESTIC MARKET DOMESTIC PRODUCTION ECONOMIC ACTIVITY ECONOMIC DEVELOPMENT ECONOMIC GROWTH ELASTICITY ELASTICITY OF SUBSTITUTION EMPLOYMENT ENDOGENOUS VARIABLES EQUATIONS EQUILIBRIUM EURO EXCHANGE RATE EXCHANGE RATE MOVEMENTS EXCHANGE RATE POLICY EXCHANGE RATE REGIME EXCHANGE RATES EXOGENOUS VARIABLES EXPENDITURES EXPORT PRICE EXPORT SUBSIDIES EXPORT SUPPLY EXPORTS EXTERNAL SHOCKS FINANCIAL CRISIS FISCAL POLICY FOREIGN DIRECT INVESTMENT FOREIGN MARKETS FOREIGN PRODUCTS GDP GENERAL EQUILIBRIUM ANALYSIS GENERAL EQUILIBRIUM MODEL GENERAL EQUILIBRIUM MODELING GOVERNMENT EXPENDITURES HIGH UNEMPLOYMENT IMPORT FUNCTION IMPORT PRICES IMPORT TARIFF IMPORT TARIFFS IMPORTS INCOME INCOME TAXES INFLATION INTEREST RATE INTERMEDIATE GOODS INTERMEDIATE INPUTS INVESTMENT FLOWS LABOR COSTS LABOR FORCE MACROECONOMIC POLICY MINIMUM WAGE MONETARY POLICY MONEY SUPPLY NATURAL RESOURCES OIL OIL IMPORTS OIL REFINERIES OUTPUT PEGS PRICE INCREASES PRICE STABILITY PRIMARY GOODS PRODUCTION FUNCTION PUBLIC ENTERPRISES PUBLIC SERVICES QUOTAS RESERVES SALES TAXES SAVINGS STABILIZATION STABILIZATION PROGRAMS TARIFF REVENUES TAX REFORM TAX REVENUES TRADE AREA TRADE DEFICIT TRADE FLOWS TRADE PATTERNS TRADE POLICY TRANSITION ECONOMIES UNEMPLOYMENT UNEMPLOYMENT RATE UNSKILLED LABOR UNSKILLED WORKERS VOLATILITY VULNERABILITY WAGE RATE WAGES WORLD MARKETS MACROECONOMIC POLICY TRADE RELATIONS EXCHANGE RATE STABILITY EXCHANGE RATE ADJUSTMENTS DOLLAR STANDARD EURO-DOLLAR MARKET Pizzati, Lodovico Labor Market Implications of Switching the Currency Peg in a General Equilibrium Model for Lithuania |
| geographic_facet |
Europe Lithuania |
| relation |
Policy Research Working Paper;No.2830 |
| description |
On February 2, 2002, Lithuania switched
its currency anchor from the dollar to the euro. While
pegging to the dollar (since April 1994) has proven
successful throughout the transition years, the recent
decision to peg to the euro was motivated by the increasing
trade relations with European economies. Pizzati does not
argue which peg is more appropriate, but he analyzes the
implications of changing the exchange rate regime for
different sectors and labor groups. While pegging to the
euro entails more stability for the export sector, Lithuania
is still dependent on dollar-based imports of primary goods
from the Commonwealth of Independent States, more so than
other Baltic countries or Central European economies. The
author uses a multisector general equilibrium model to
compare the effects of dollar-euro exchange rate movements
under these alternative pegs. Overall, simulation results
suggest that while a euro-peg will provide more stability to
GDP and employment, it will also imply more volatility in
prices, suggesting that under the new peg macroeconomic
policy should be more concerned with inflationary pressures
than before. From a sector-specific perspective, pegging to
the euro will provide a more stable demand for
unskilled-intensive manufacturing and commercial services.
But other sectors, such as agriculture, will still face the
same vulnerability to exchange rate movements. This suggests
that additional policy measures may be needed to compensate
sector-specific divergences. |
| format |
Publications & Research :: Policy Research Working Paper |
| author |
Pizzati, Lodovico |
| author_facet |
Pizzati, Lodovico |
| author_sort |
Pizzati, Lodovico |
| title |
Labor Market Implications of Switching the Currency Peg in a General Equilibrium Model for Lithuania |
| title_short |
Labor Market Implications of Switching the Currency Peg in a General Equilibrium Model for Lithuania |
| title_full |
Labor Market Implications of Switching the Currency Peg in a General Equilibrium Model for Lithuania |
| title_fullStr |
Labor Market Implications of Switching the Currency Peg in a General Equilibrium Model for Lithuania |
| title_full_unstemmed |
Labor Market Implications of Switching the Currency Peg in a General Equilibrium Model for Lithuania |
| title_sort |
labor market implications of switching the currency peg in a general equilibrium model for lithuania |
| publisher |
World Bank, Washington, D.C. |
| publishDate |
2013 |
| url |
http://documents.worldbank.org/curated/en/2002/04/1775829/labor-market-implications-switching-currency-peg-general-equilibrium-model-lithuania http://hdl.handle.net/10986/14286 |
| _version_ |
1764429919396298752 |