Fixed Exchange Rate Regimes & Asymmetric Shocks : a study of Denmark’s fixed exchange rate policy in the macroeconomic turbulence during the 2020’s
Sørensen, Kasper (2024)
Sørensen, Kasper
2024
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Julkaisun pysyvä osoite on
https://urn.fi/URN:NBN:fi:amk-202404237397
https://urn.fi/URN:NBN:fi:amk-202404237397
Tiivistelmä
Unprecedented economic environments provide unique opportunities for economic studies, and the macroeconomic turbulence of the 2020’s has exposed the vulnerability of fixed exchange rate systems. This study examines the challenges asymmetric shocks pose to fixed exchange rates. The purpose is to evaluate Denmark’s fixed exchange rate regime given current developments in Germany where an energy crisis is accelerating deindustrialization.
The thesis is an extended literature review; however, it has combined this research method with a case study and mixed-method analysis to establish the relevance of Germany’s energy crisis and deindustrialization. Subsequently, it discusses potential challenges for Denmark’s fixed exchange rate based on exchange rate theory and the case of Germany’s energy crisis. Lastly, it assesses whether a new exchange rate policy is preferred and examines alternative solutions.
With emphasis on exchange rate theory, the study encompasses theoretical concepts and empirical observations ranging from Optimum Currency Area theory to experiences with comparable exchange rate regimes in Argentina and Switzerland.
Current economic development in Germany shows the energy crisis accelerating an already ongoing deindustrialization. Denmark’s economic structure differs from Germany’s, and data indicates deteriorating business cycle synchronization. With Denmark’s monetary policy reserved for maintaining a stable exchange rate, it hampers the country’s ability to adjust for asymmetric shocks. It can be concluded that Denmark’s fixed exchange rate will come under great pressure due to Germany’s energy crisis, and it will necessitate a re-assessment of the fixed exchange rate policy.
The thesis is an extended literature review; however, it has combined this research method with a case study and mixed-method analysis to establish the relevance of Germany’s energy crisis and deindustrialization. Subsequently, it discusses potential challenges for Denmark’s fixed exchange rate based on exchange rate theory and the case of Germany’s energy crisis. Lastly, it assesses whether a new exchange rate policy is preferred and examines alternative solutions.
With emphasis on exchange rate theory, the study encompasses theoretical concepts and empirical observations ranging from Optimum Currency Area theory to experiences with comparable exchange rate regimes in Argentina and Switzerland.
Current economic development in Germany shows the energy crisis accelerating an already ongoing deindustrialization. Denmark’s economic structure differs from Germany’s, and data indicates deteriorating business cycle synchronization. With Denmark’s monetary policy reserved for maintaining a stable exchange rate, it hampers the country’s ability to adjust for asymmetric shocks. It can be concluded that Denmark’s fixed exchange rate will come under great pressure due to Germany’s energy crisis, and it will necessitate a re-assessment of the fixed exchange rate policy.