 The third round of euro area enlargement: Are the candidates ready?Milan Deskar-Škrbić, Karlo Kotarac and Davor Kunovac Journal of International Money and Finance, 2020, vol. 107, issue C Abstract: In this paper, we study the readiness of Bulgaria, Croatia and Romania to adopt the common monetary policy of the ECB in the context of the third round of euro area enlargement. Following the optimal currency area (OCA) theory literature, we focus on the coherence of economic shocks between candidate countries on the one hand and the euro area on the other and analyse the relevance of euro area shocks for key macroeconomic variables in these countries. Our results, based on a novel empirical approach, show that the overall importance of those shocks that are relevant for the ECB is fairly similar in candidate countries and the euro area. The cost of joining the euro area should, therefore, not be pronounced, at least from the aspect of the adoption of the common counter-cyclical monetary policy. This conclusion holds for all three candidates, despite important differences in their monetary and exchange rate regimes. Keywords: Euro area enlargement; Economic shocks; BVAR; Common monetary policy; Mundellian trilemma (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:jimfin:v:107:y:2020:i:c:s0261560620301613 DOI: 10.1016/j.jimonfin.2020.102205 Access Statistics for this article Journal of International Money and Finance is currently edited by J. R. Lothian More articles in Journal of International Money and Finance from Elsevier |
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