A REVIEW OF EMPIRICAL STUDIES ON THE OPPORTUNENESS OF EX-COMMUNIST STATES’ JOINING THE EURO AREA

Vasile-Liviu Ichim ()
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Vasile-Liviu Ichim: “Stefan Lupascu” Institute of European Studies – Iasi, Romania

The Annals of the "Stefan cel Mare" University of Suceava. Fascicle of The Faculty of Economics and Public Administration, 2009, vol. 9, issue Special, 33-38

Abstract: The empirical studies analyzing the relevance of the theory on the optimal monetary areas for the ex-communist states reach different conclusions, estimating the economic convergence on the basis of various factors: economic structure, intensity of trade linkages, exchange rate volatility, size of the national economy, foreign direct investment, and exports structure based on products and from a geographical point of view. As for the business cycle correlation between the old and the new EU members, these studies led to contradictory results, but the relevance itself of this criterion concerning the lack of asymmetric shocks is being questioned. In a monetary union, on the one hand, the business cycle synchronization makes the single monetary policy work efficiently and on the other hand, the asymmetry of the economic shocks makes the single currency more stable. Starting from the results of the study conducted by Bayoumi and Eichengreen in order to establish the Optimum Currency Area indices and taking into account the size of the countries included in this analysis, we reach the conclusion that the size of a national economy is an important indicator in establishing the degree of monetary optimality of a certain region, influencing in inverse ratio the monetary optimality of the region. The larger a country is, the lower economic convergence is in comparison with a group of states, because of the extremely diversified production, that in its turn will lead to a lower level of economic openness.

Keywords: EU/euro area; Optimum Currency Area; economic openness; business cycles; real convergence; economic shocks (search for similar items in EconPapers)
Date: 2009
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