The Costs of EMU for Transition Countries

Alexandra Lopes ()

No 2, Money Macro and Finance (MMF) Research Group Conference 2006 from Money Macro and Finance Research Group

Abstract: Czech Republic, Hungary and Poland will have to join the European and Monetary Union. Surprisingly, there is very little work on the welfare consequences of the loss of monetary policy flexibility for these countries. This paper fills this void by providing a framework to evaluate quantitatively the economic costs of joining the EMU. Using a two country dynamic general equilibrium model with sticky prices we investigate the economic implications of the loss of monetary policy flexibility associated with EMU for each country. The main contribution of our general equilibrium approach is that we can evaluate the effects of monetary policy in terms of welfare. Our findings suggest that these economies may experience sizable welfare losses as a result of joining the EMU. Results show that the cost associated with the loss of the monetary policy flexibility is bigger in the presence of persistence technological shocks, weak correlation of monetary shocks, strong risk aversion and a small trade share with the EMU

Keywords: Monetary Policy; Eastern and Central Europe Countries; Euro; Open Economy Macroeconomics; General Equilibrium (search for similar items in EconPapers)
JEL-codes: C68 E52 F41 (search for similar items in EconPapers)
Date: 2007-02-02
New Economics Papers: this item is included in nep-cba, nep-mac, nep-mon and nep-tra
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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http://repec.org/mmf2006/up.7815.1140017467.pdf (application/pdf)

Related works:
Working Paper: The Costs of EMU for Transition Countries (2006)
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Persistent link: https://EconPapers.repec.org/RePEc:mmf:mmfc06:2

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