Lithuania's Track to the Euro and the Endogeneity Hypothesis
AbstractThis paper analyses the business cycle synchronization between Lithuania and the Euro area using the structural vector autoregression (SVAR) model with Blanchard and Quah decomposition. The analysis includes experiences both before and after Lithuania pegged its currency to the Euro in the beginning of 2002. The present calculations give positive correlation coefficients for the period 2002-2005 and show that the Lithuanian business cycle becomes more synchronized with the business cycle in the Euro area. Compared with earlier calculations, this result gives a positive outlook and thus corroborates the endogeneity hypothesis of the Optimum Currency Area (OCA) theory in the Lithuanian case. Adoption of the Euro for Lithuania should therefore be of less concern than previously anticipated based on experiences from the years before the Lithuanian currency was fixed to the US dollar.
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Bibliographic InfoArticle provided by Baltic International Centre for Economic Policy Studies in its journal Baltic Journal of Economics.
Volume (Year): 6 (2006)
Issue (Month): 1 (July)
business cycle; optimal currency area;
Find related papers by JEL classification:
- F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
- E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)
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