An Optimal Currency Area Perspective of the EU Enlargement to the CEECs

Laurence Boone · Mathilde Maurel

74 citations0/0 files storedRePEc: Research Papers in Economics

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Global Financial Crisis and Policies Monetary Policy and Economic Impact European Monetary and Fiscal Policies

Abstract

This paper tries to assess whether it would be optimal for the CEECs to form a monetary union with either Germany or the EU. This cannot be done without discussing first the Maastricht criteria, which are the condition « sine qua non » for a country to be eligible. Yet, they are often independent from more structural criteria (Bayoumi and Eichengreen (1996b)). Hence, this paper argues that although the CEECs do not satisfy -yet- the Maastricht criteria, their economic cycle is close enough to that of the EU and Germany for a monetary union to bring them great benefits. Indeed, using a methodology derived by L. Reichlin and M. Forni (1997) and C. Fuss (1997), it can be shown that (i) the percentage of CEECs business cycle fluctuations explained by a German shock is very high, ; (ii) furthermore, the impulse responses are positively correlated. These suggest that the CEECs would not suffer from a common monetary policy .

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References

1996Operationalizing the Theory of Optimum Currency Areas 1992Is There a Conflict Between EC Enlargement and European Monetary Unification?

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2004Characterising the Business Cycle for Accession Countries 2006Meta-Analysis of the Business Cycle Correlation between the Euro Area and the Ceecs 2004Real Convergence and Euro Adoption in Central and Eastern Europe: Trade and Business Cycle Correlations as Endogenous Criteria for Joining Emu 2004Comparing Economic Dynamics in the EU and CEE Accession Countries 2002The ECB and Euro-Area Enlargement 2007A Meta-Analysis of Business Cycle Correlation between the Euro Area and CEECs: What Do We Know - and Who Cares?1977Exchange Rate Regimes and Supply Shocks Asymmetry: the Case of the Accession Countries 2007How to Be Well Shod to Absorb Shocks? Shock Synchronization and Joining the Euro Zone

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