The Dynamics of Shock Correlations Between the Old and New Members of the European Union

Peter Mikek

Eastern European Economics, 2010, vol. 48, issue 1, 23-42

Abstract: This paper examines the convergence of shocks in new member states (NMSs) to their European counterparts through time. The decision to adopt the euro is associated with higher implicit costs for NMSs with a more asymmetric shock structure. I employ rolling regressions and the Kalman (1960) filter to calculate time-varying regression coefficients relating previously identified structural shocks in NMSs and the European Monetary Union. In general, the results show no evidence of convergence and therefore imply limited merits of accession. Additionally, they suggest that the catching-up process in NMSs is slowing down.

Date: 2010
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