The admission of accession countries to an enlarged monetary union: a tentative assessment

Roberto A. De Santis () and Ca'Zorzi, Michele ()
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Ca'Zorzi, Michele: European Central Bank, Postfach 160319, 60311 Frankfurt am Main, Germany., http://www.ecb.europa.eu/home/html/index.en.html
Authors registered in the RePEc Author Service: Michele Ca' Zorzi

No 216, Working Paper Series from European Central Bank

Abstract: The enlargement of the European monetary union to include the accession countries (ACs) will not lead to higher average inflation in the enlarged euro area, but only to inflation redistribution across countries if continuity of the monetary policy framework is preserved. In the short term, unanticipated shocks to the real exchange rate may instead affect aggregate inflation if member countries' economic structure differs. The theoretical model is then applied to ten ACs. The numerical results indicate that the implications for the euro area are significant only if we assume a strong real exchange rate appreciation and if ACs are weighted in terms of purchasing power parity standards. In the event of real exchange rate or country-specific supply shocks in ACs, the consequences would be limited for both the current and the enlarged euro area, but sizeable for ACs themselves. JEL Classification: E52; E58; F33; F40.

Keywords: Accession countries; Balassa-Samuelson effect; European monetary union; exchange rate regimes; monetary policy. (search for similar items in EconPapers)
Date: 2003-02
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