 Would it have paid to be in the eurozone?Michal Brzoza-Brzezina, Krzysztof Makarski and Grzegorz Wesołowski Economic Modelling, 2014, vol. 41, issue C, 66-79 Abstract: Giving up an independent monetary policy and a flexible exchange rate are the key aspects of joining a monetary union. In this paper we analyse how joining the euro area would have affected the Polish business cycle during the recent financial crisis. To this end we construct a small open economy DSGE model and estimate it for Poland and the euro area. Then we run a counterfactual simulation, assuming Poland's euro area accession in 1q2007. The results are striking — volatilities of GDP and inflation increase substantially. In particular, had Poland adopted the euro, GDP growth would have oscillated between −6% and +9% (−9% to +11% under more extreme assumptions) instead of between 1% and 7%. We conclude that during the analysed period independent monetary policy and, in particular, the flexible exchange rate played an important stabilizing role for the Polish economy. Keywords: Optimum currency area; Euro-area accession; Emerging market (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:41:y:2014:i:c:p:66-79 DOI: 10.1016/j.econmod.2014.04.006 Access Statistics for this article Economic Modelling is currently edited by S. Hall and P. Pauly More articles in Economic Modelling from Elsevier |
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