Exchange Rate Regimes and Supply Shocks Asymmetry: The Case of the Accession Countries
AbstractThis Paper reviews the pros and cons of an early EU enlargement towards Central and Eastern European Countries (CEECs hereafter). First, the Maastricht criteria, which cannot be literally assessed during the catching up process, but that nevertheless mirror the huge efforts undertaken in order to (i) stabilise the economies, (ii) converge towards the EU, and then (iii) participate into the EMU, are analysed. Second, real convergence is observed to occur at different rates, depending upon the initial conditions faced and the productivity gains realised by each country. Third, computing the correlation of demand and supply shocks in a wide sample of Euro countries and the CEECs, gives some indication of the similarity of the business cycles and economic structures of the CEECs on the one hand, and the EU on the other. Yet, we argue that looking at static correlation only (averaged over the last decade) is too simplistic, as the transition process will blur these averages. Using the Kalman filter, we are able to compute time varying correlation, hence differentiating between the transition and the most recent period. Our results emphasise an ongoing process of demand shocks convergence, but supply shocks divergence. Various exchange rate strategies are then discussed.
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Bibliographic InfoPaper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 3408.
Date of creation: Jun 2002
Date of revision:
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Other versions of this item:
- Jan Babetski & Laurence Boone & Mathilde Maurel, 2003. "Exchange Rate Regimes and Supply Shocks Asymmetry: the Case of the Accession Countries," CERGE-EI Working Papers wp206, The Center for Economic Research and Graduate Education - Economic Institute, Prague.
- E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
- F30 - International Economics - - International Finance - - - General
- F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission
This paper has been announced in the following NEP Reports:
- NEP-ALL-2003-02-18 (All new papers)
- NEP-CBA-2003-02-18 (Central Banking)
- NEP-EEC-2003-02-18 (European Economics)
- NEP-IFN-2003-02-18 (International Finance)
- NEP-MAC-2003-02-18 (Macroeconomics)
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