Exchange Rate Regimes and Supply Shocks Asymmetry: the Case of the Accession Countries

Jan Babetski, Laurence Boone and Mathilde Maurel
Authors registered in the RePEc Author Service: Jan Babecký

CERGE-EI Working Papers from The Center for Economic Research and Graduate Education - Economics Institute, Prague

Abstract: This paper reviews the pros and cons of an early EU enlargement towards Central and Eastern European Countries (CEECs hereafter). Firstly, the Maastricht criteria, which cannot be literally assessed during the catching up process, but that nevertheless mirror the huge efforts undertaken in order to (i) stabilise the economies, (ii) converge towards the EU, and then (iii) participate in the EMU, are analysed. Secondly, real convergence is observed to occur at different rates, depending upon the initial conditions faced and the productivity gains realised by each country. Thirdly, computing the correlation of demand and supply shocks in a sample of Euro countries, such as Ireland, Portugal and Spain, at the time when they were entering the EU and the CEECs, gives some indication of the similarity of the business cycles and economic structures of the CEECs on the one hand, and the EU on the other. However, we argue that looking at static correlation only (averaged over the last decade) is too simplistic, as these averages will be blurred by the transition process. Using the Kalman filter, we are able to compute time varying correlation, hence differentiating between the transition and the most recent period. Our results emphasise an ongoing process of demand shocks convergence, but supply shocks divergence. Various exchange rate strategies are then discussed.

Keywords: EU enlargement; exchange rate regimes; OCA criteria; Kalman filter (search for similar items in EconPapers)
JEL-codes: E32 F30 F42 (search for similar items in EconPapers)
Date: 2003-01
New Economics Papers: this item is included in nep-cba, nep-eec, nep-ifn and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

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Related works:
Working Paper: Exchange Rate Regimes and Supply Shocks Asymmetry: the Case of the Accession Countries (2022)
Working Paper: Exchange Rate Regimes and Supply Shocks Asymmetry: the Case of the Accession Countries (2022)
Working Paper: Exchange Rate Regimes and Supply Shocks Asymmetry: the Case of the Accession Countries (2004)
Working Paper: Exchange Rate Regimes and Supply Shocks Asymmetry: the Case of the Accession Countries (2004)
Working Paper: Exchange Rate Regimes and Supply Shocks Asymmetry: The Case of the Accession Countries (2002)
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