Estonia and the European Monetary Union – Are there Benefits from a ""Late"" Accession?

Timo Baas

No 489, Ruhr Economic Papers from RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen

Abstract: The failure of the Maastricht criteria delayed Estonia's accession to the European Monetary Union (EMU) until January 2011. During this time, trading shares with Eurozone countries declined, raising questions about the optimal accession time. In this study, the macroeconomic effects of introducing a common currency are analyzed by considering the state of the economy in different years of accession. By accounting for currency conversion costs and in-house costs, we show that the trade effects of the EMU depend on the year of accession. In summary, a 'late' accession induces higher benefits in terms of an increase in GDP, private consumption, and investment. However, the additional investment demand for building up capital stock in export industries is much higher in the 'late' accession scenario. If foreign savings are not adjusted optimally, the 'early' accession scenario might be beneficial.

Keywords: Eurozone; optimum currency areas; international trade; computable equilibrium model (search for similar items in EconPapers)
JEL-codes: C68 F15 F22 J30 J61 (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:zbw:rwirep:489

DOI: 10.4419/86788558

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