What Variability of Real Exchange Rate Implies about the Success of the Euro
Cynthia Royal Tori, Scott Leander Tori

Abstract
This paper uses real exchange rate variability and the adjustment time for real exchange rate changes to assess the viability of euro zone membership for the 17 European Union countries that adopted the euro. The results support euro zone membership for Austria, Cypress, France, Germany, Italy, Luxembourg, Portugal, Slovakia and Spain. The persistence of real exchange rate changes and slow adjustment times suggest that the viability of euro zone membership for Belgium, The Netherlands, Finland, Malta and Slovenia requires greater integration. The results also indicate that the costs associated with euro zone membership are great for Greece and Ireland, and the viability of membership is in question. The results support the conclusion that Greece and Ireland should consider dropping out of the euro zone. Since Estonia only adopted the euro on January 1, 2011, the time frame is too short to infer any conclusions regarding viability.

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