Is the Euro the Optimum Currency for Croatia: An Assessment Using the Optimum Currency Area Theory

Mislav Brkic () and Ana Šabić ()
Additional contact information
Ana Šabić: Croatian National Bank

No 30, Surveys from The Croatian National Bank, Croatia

Abstract: Using the optimum currency area theory, this paper analyses whether Croatia is ready for euro adoption. The theory proposes several criteria a country should meet to be able to function successfully in a setting of common monetary policy. Most of the criteria refer to the establishment of the degree of economic integration between a country and a monetary union in view of the fact that close economic integration implies lower risk of asymmetric shocks. The analysis shows that the Croatian economy is highly integrated with the euro area in terms of trade and finances, its business cycle is synchronised with the business cycles of the major euro area member states, while EU accession raised the degree of political integration between Croatia and other member states. Under these criteria, it may be concluded that Croatia will function efficiently in a setting of common monetary policy. By contrast, Croatia's performance regarding the economic diversification criterion is relatively poor. In addition to favourable results under most criteria of the optimum currency area theory, there are other important arguments in favour of euro adoption in Croatia. More specifically, the adoption of the euro would eliminate the problem of the high euroisation of the Croatian economy, as well as a number of other risks and constraints arising from that problem. By adopting the euro, Croatia would therefore make an important strategic step towards maintaining macroeconomic and financial stability in the long run.

Keywords: optimum currency area theory; monetary policy; euro; Croatia (search for similar items in EconPapers)
JEL-codes: E42 E52 F33 F45 (search for similar items in EconPapers)
Date: 2018-01
References: Add references at CitEc
Citations:

Downloads: (external link)
http://www.hnb.hr/repec/hnb/wpaper/pdf/s-030.pdf (application/pdf)
Our link check indicates that this URL is bad, the error code is: 404 Not Found (http://www.hnb.hr/repec/hnb/wpaper/pdf/s-030.pdf [302 Moved Temporarily]--> https://www.hnb.hr/repec/hnb/wpaper/pdf/s-030.pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:hnb:survey:30

Access Statistics for this paper

More papers in Surveys from The Croatian National Bank, Croatia
Bibliographic data for series maintained by Romana Sinković ().