Lithuania's Track to the Euro and the Endogeneity Hypothesis

Jurgita Jurgutyte ()
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Jurgita Jurgutyte: Bank of Lithuania

Baltic Journal of Economics, 2006, vol. 6, issue 1, 53-69

Abstract: This paper analyses the business cycle synchronization between Lithuania and the Euro area using the structural vector autoregression (SVAR) model with Blanchard and Quah decomposition. The analysis includes experiences both before and after Lithuania pegged its currency to the Euro in the beginning of 2002. The present calculations give positive correlation coefficients for the period 2002-2005 and show that the Lithuanian business cycle becomes more synchronized with the business cycle in the Euro area. Compared with earlier calculations, this result gives a positive outlook and thus corroborates the endogeneity hypothesis of the Optimum Currency Area (OCA) theory in the Lithuanian case. Adoption of the Euro for Lithuania should therefore be of less concern than previously anticipated based on experiences from the years before the Lithuanian currency was fixed to the US dollar.

Keywords: business cycle; optimal currency area (search for similar items in EconPapers)
JEL-codes: E30 F33 (search for similar items in EconPapers)
Date: 2006
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:bic:journl:v:6:y:2006:i:1:p:53-69

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