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The process of convergence towards the euro for the Visegrad-4 countries

Giuliana Passamani ()

No 825, Department of Economics Working Papers from Department of Economics, University of Trento, Italia

Abstract: The aim of the paper is to analyze the foreign transmission mechanism between each of the Visegrad-4 countries and the eurozone, through an empirical analysis of the basic international parity conditions linking Czech, Hungarian, Polish and Slovakian inflations and interest rates with the ones of the current euro area members. The focus of the analysis is to show the differences among these catching-up economies, with particular attention to their process of convergence towards the eurozone economy. For reasons due to the availability of data, the sample covers the last decade. We use the cointegrated VAR model to define longrun stationary relations as well as common stochastic trends. The methodology adopted is properly apt to uncover the dynamic structure underlying the stochastic behaviour of prices, interest rates and exchange rate. Of particular interest is the empirical finding that the parities do not hold on their own, as expected, but that weaker form of the same parities, or linear combinations of them, hold in our data set, with some differences for each country. Also the process of convergence is different: the Czech Republic seems to have reached a relative convergence, while for the other countries we have that the process show a tendency towards convergence.

Keywords: Visegrad_4 countries; PPP; UIP; RIP; Cointegrated VAR; Convergence (search for similar items in EconPapers)
JEL-codes: E31 E43 F31 (search for similar items in EconPapers)
Date: 2008
New Economics Papers: this item is included in nep-cba, nep-eec, nep-ifn, nep-mac, nep-mon, nep-opm and nep-tra
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