Abstract
An optimal rule for fixing conversion rates at the start of EMU This paper investigates the various rules proposed for fixing the conversion rates between the currencies of the future European Monetary Union. As a matter of fact, these rules are not all equivalent and have differently properties regarding the way they could influence financial markets and their stability. Indeed, the rule must preferably imply great stability once it has been announced and should allow for smooth convergence toward some « fair » rates. Some of these rules dont achieve these goals and could disturb the run-up to EMU. Alternatively, we show that there exists a simple optimal rule which ensures that the instantaneous volatility of the exchange rates between currencies of the future EMU is exactly equal to zero along the whole path to EMU whatever monetary policies are. Moreover, this optimal rule has all the properties required for being a « good » rule.
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