Pizzati, Lodovico2013-06-282013-06-282002-04https://hdl.handle.net/10986/14286On 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.en-USCC BY 3.0 IGOAGGREGATE CONSUMPTIONAGGREGATE DEMANDAGGREGATE EXPORTSAGGREGATE IMPORTSAGRICULTUREAICBALANCE OF PAYMENTSBALANCE SHEETBANKING SECTORCAPITAL ACCUMULATIONCAPITAL EMPLOYEDCAPITAL INTENSIVE PRODUCTIONCAPITAL STOCKCENTRAL BANKCOMMERCIAL BANKSCPICURRENCYCURRENCY PEGSCURRENT ACCOUNTDEBTDEFICIT FINANCINGDEFICITSDEMAND FOR GOODSDEPOSITSDOLLAR TERMSDOMESTIC DEMANDDOMESTIC MARKETDOMESTIC PRODUCTIONECONOMIC ACTIVITYECONOMIC DEVELOPMENTECONOMIC GROWTHELASTICITYELASTICITY OF SUBSTITUTIONEMPLOYMENTENDOGENOUS VARIABLESEQUATIONSEQUILIBRIUMEUROEXCHANGE RATEEXCHANGE RATE MOVEMENTSEXCHANGE RATE POLICYEXCHANGE RATE REGIMEEXCHANGE RATESEXOGENOUS VARIABLESEXPENDITURESEXPORT PRICEEXPORT SUBSIDIESEXPORT SUPPLYEXPORTSEXTERNAL SHOCKSFINANCIAL CRISISFISCAL POLICYFOREIGN DIRECT INVESTMENTFOREIGN MARKETSFOREIGN PRODUCTSGDPGENERAL EQUILIBRIUM ANALYSISGENERAL EQUILIBRIUM MODELGENERAL EQUILIBRIUM MODELINGGOVERNMENT EXPENDITURESHIGH UNEMPLOYMENTIMPORT FUNCTIONIMPORT PRICESIMPORT TARIFFIMPORT TARIFFSIMPORTSINCOMEINCOME TAXESINFLATIONINTEREST RATEINTERMEDIATE GOODSINTERMEDIATE INPUTSINVESTMENT FLOWSLABOR COSTSLABOR FORCEMACROECONOMIC POLICYMINIMUM WAGEMONETARY POLICYMONEY SUPPLYNATURAL RESOURCESOILOIL IMPORTSOIL REFINERIESOUTPUTPEGSPRICE INCREASESPRICE STABILITYPRIMARY GOODSPRODUCTION FUNCTIONPUBLIC ENTERPRISESPUBLIC SERVICESQUOTASRESERVESSALES TAXESSAVINGSSTABILIZATIONSTABILIZATION PROGRAMSTARIFF REVENUESTAX REFORMTAX REVENUESTRADE AREATRADE DEFICITTRADE FLOWSTRADE PATTERNSTRADE POLICYTRANSITION ECONOMIESUNEMPLOYMENTUNEMPLOYMENT RATEUNSKILLED LABORUNSKILLED WORKERSVOLATILITYVULNERABILITYWAGE RATEWAGESWORLD MARKETS MACROECONOMIC POLICYTRADE RELATIONSEXCHANGE RATE STABILITYEXCHANGE RATE ADJUSTMENTSDOLLAR STANDARDEURO-DOLLAR MARKETWorld Bank10.1596/1813-9450-2830