OCA theory and EMU eastern enlargement: An empirical application

Marco Weimann

No 07/02, Dresden Discussion Paper Series in Economics from Technische Universität Dresden, Faculty of Business and Economics, Department of Economics

Abstract: Already before the final introduction of the single European currency there have been negotiations on a further enlargement of the Eurozone to the East. The accession of 10 Central and Eastern European Countries (CEEC) to Euroland is likely to be realised within the next 10 years and it is an important issue to assess whether these candidates are better or worse suitable for EMU membership than the current participants. The theory of optimum currency areas provides several criteria and econometric tools for analysing a prospective monetary union. Building on methodologies developed with regard to the current EMU we use a structural VAR approach in order to identify economic shocks that hit the countries to be analysed in the past. Correlations of the shocks disclosed do shed light on the question whether a common monetary policy may be suitable for the respective economies. The few already existing studies on this issue for the region are all prone to the Lucas critique since they compare contemporaneous correlations in East and West. In order to correct for this flaw we use lagged time series instead.

Keywords: OCA; EMU; Eastern enlargement; Shock analysis (search for similar items in EconPapers)
JEL-codes: E42 F33 F36 (search for similar items in EconPapers)
Date: 2002
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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