Would it have paid to be in the eurozone?
Krzysztof Makarski () and
No 128, NBP Working Papers from Narodowy Bank Polski, Economic Research Department
Giving up an independent monetary policy and a flexible exchange rate are the key sources of costs and benefits entailed to joining a monetary union. In this paper we analyze their ex post impact on the stability of the Polish economy during the recent financial crisis. To this end we construct a small open economy DSGE model and estimate it for Poland and the euro area. Then we run a counterfactual simulation, assuming Poland’s euro area accession in 1q2007. The results are striking - volatilities of GDP and inflation increase substantially. In particular, had Poland adopted the euro, GDP growth would have oscillated between -6% and +9% (-9% to +11% under more extreme assumptions) instead of between 1% and 7%. We conclude that during the analyzed period independent monetary policy and, in particular, the flexible exchange rate played an important stabilizing role for the Polish economy.
Keywords: optimum currency area; euro-area accession; emerging market (search for similar items in EconPapers)
JEL-codes: E32 E58 E65 (search for similar items in EconPapers)
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Journal Article: Would it have paid to be in the eurozone? (2014)
Working Paper: Would it have paid to be in the eurozone? (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:nbp:nbpmis:128
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