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The Cost of Euro Adoption in Poland

Svitlana Maksymenko ()

No 5779, Working Paper from Department of Economics, University of Pittsburgh

Abstract: The paper investigates potential effects of euroization on the economy of Poland. It develops an empirical framework to provide estimations of the euro adoption costs arising from a loss of exchange rate regime as a macro-stabilization tool. The paper quantifies how a replacement of zloty with the euro, and thus the elimination of exchange rate would affect output fluctuations in Poland. Our analysis of the forecast error variance decomposition confirms that the real exchange rate served as an external shock absorber for Polish economy in 1990-2014. We find that external shocks on average explain up to 12-13% of the exchange rate variation and up to 5% in variation of Polish log-transformed output. We also find that over the past two decades the Poland’s economy has become more resilient to external shocks, and thus it is reasonable to expect the cost of euro adoption to decline with further EU integration.

Date: 2015-01
New Economics Papers: this item is included in nep-mac and nep-mon
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