Pilgrims to the Eurozone: How far, how fast?

Abstract

In our analysis, we re-examine the nominal and real convergence of all recent 10 European Union (EU) members to EU standards. Testing for monetary convergence has significant implications for interim optimal exchange rate and monetary policies before a formal and permanent link to the euro, while real convergence is the ultimate objective of economic integration. Novel features of the paper include broader measures of real convergence in both euro as well as local currencies, an examination of inflation and interest rate convergence with respect to the Maastricht benchmarks, and employment of more appropriate tests of convergence allowing for structural breaks. The results indicate slow but steady per-capita real income convergence towards EU standards. On the other hand, evidence indicates significant strong inflation and interest rate convergence. Policy implications of the paper are also discussed. #

Implications of ERM2 for Poland's monetary policy

“…We certainly accept the constraints imposed by the ERM2, namely the requirements of: (1) applying this mechanism for at least two years prior to the examination period qualifying for the euro zone, (2) maintaining currency stability within a 'normal' band of fluctuations and (3) refraining from currency devaluation in any form. We agree with a widely accepted opinion that participation in ERM2 should not exceed the arbitrarily imposed minimum two-year period, sharing the views of Szapáry (2000), Kennen and Meade (2003), and Kočenda, Kutan and Yigit (2005), among others. In hindsight, while the ERM2 necessitates the pursuit of exchange rate stability objective, we view the possibility of incorporating it into DIT framework as a preferred policy option, which will preserve policy autonomy to the very end of the euro-convergence process.…”

“…There is a well-established consensus in the literature that the DIT declaration alone does not guarantee its success (Taylor, 2000;Jonas and Mishkin, 2003;Eichengreen, 2005 (Natalucci and Ravenna, 2002;DeGrauwe and Schnabl, 2004;Kočenda, Kutan and Yigit 2005) assuming the prevalence of Harrod-Balassa-Samuelson effects 5 .…”

An analysis of Turkey's accession to the European Union

“…Accession dates:Denmark, Ireland, United Kingdom 1973; Greece 1981; Portugal, Spain 1986; Austria, Finland, Sweden 1995. 7 Kočenda, Kutan, andYigit (2006) also find evidence of real convergence.…”

Shocks to New and Old Europe: How Symmetric?

“…This includes Cohen and Wyplosz's (1989) interpretation of movements in sums of data for two regions as symmetric disturbances and movements in differences as asymmetric shocks. A number of studies in this group focused on the economic convergence of NMS to the EU, including Brada and Kutan (2001), Kocenda et al (2005), Kutan and Yigit (2004) and many others.…”