An Optimal Currency Area Perspective of the EU Enlargement to the CEECs

Laurence Boone () and Mathilde Maurel

No 2119, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: This paper tries to assess whether it would be optimal for the CEECs to form a monetary union with either Germany or the EU. This cannot be done without discussing first the Maastricht criteria, which are the condition « sine qua non » for a country to be eligible. Yet, they are often independent from more structural criteria (Bayoumi and Eichengreen (1996b)). Hence, this paper argues that although the CEECs do not satisfy -yet- the Maastricht criteria, their economic cycle is close enough to that of the EU and Germany for a monetary union to bring them great benefits. Indeed, using a methodology derived by L. Reichlin and M. Forni (1997) and C. Fuss (1997), it can be shown that (i) the percentage of CEECs business cycle fluctuations explained by a German shock is very high,; (ii) furthermore, the impulse responses are positively correlated. These suggest that the CEECs would not suffer from a common monetary policy .

Keywords: eastern enlargement; Economics of Transition; Optimal Currency Area (search for similar items in EconPapers)
JEL-codes: E32 F3 F42 (search for similar items in EconPapers)
Date: 1999-03
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Citations: View citations in EconPapers (82)

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