Convergence and shocks in the road to EU: Empirical investigations for Bulgaria and Romania

Jean-Marc Figuet and Nikolay Nenovsky ()

No wp810, William Davidson Institute Working Papers Series from William Davidson Institute at the University of Michigan

Abstract: Despite their progress Bulgaria and Romania significantly differ from the EU economies. In this article, on the basis of the theoretical and empirical achievements of the theory of optimal and (endogenous) currency areas we study to what extent the two South European economies are able to adopt the common economic (and above all monetary) policy of the EU, and to what extent the convergence to the EU stimulates the economic development of these countries. Despite the similarities, the two countries now differ fundamentally in their choice of a monetary regime – while Romania uses inflation targeting and a flexible exchange rate, Bulgaria has adopted a currency board regime. For this purpose we analyze: (i) the degree of nominal, real and financial convergence and synchronization of the economic cycle with that of the European Union (using unconditional ß convergence approach). Income and price levels, inflation rate, interest rate, monetary aggregates, credit, productivity etc. are among the studied variables; (ii) the resistance to different external and internal shocks (using VAR model) as well as (iii) the mechanisms for balancing and absorption of these shocks. To give a better comparative picture we compose the panel including Hungary and Czech Republic.

Keywords: convergence; shocks; EU enlargement; Bulgaria and Romania (search for similar items in EconPapers)
JEL-codes: E3 F4 P2 (search for similar items in EconPapers)
Pages: pages
Date: 2006-02-01
New Economics Papers: this item is included in nep-cba, nep-eec, nep-fdg, nep-fmk, nep-mac and nep-tra
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (11)

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Working Paper: Convergence and Shocks in the road to EU: Empirical investigations for Bulgaria and Romania (2006)
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