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Stability of monetary unions : lessons from the break-up of Czechoslovakia

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Author Info
Fidrmuc, J.
Horvath, J. (Tilburg University, Center for Economic Research)

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Abstract

In 1993, Czechoslovakia experienced a two-fold break-up: On January 1 st, the country disintegrated as a political union, while preserving an economic and monetary union. Then, the Czech-Slovak monetary union collapsed on February 8 th. We analyze the economic background of the two break-ups, and discuss lessons for stability of monetary unions in general. We argue that while Czechoslovakia could be considered an optimum currency area, it was in fact less integrated than some other existing unions. That, along with low labor mobility and higher concentration of heavy and military industries in Slovakia, made Czechoslovak economy vulnerable to asymmetric economic shocks - such as those induced by the economic transition. Furthermore, the Czech-Slovak monetary union was marred by low credibility, lack of political commitment, low exit costs, and the absence of fiscal transfers.

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Paper provided by Tilburg University, Center for Economic Research in its series Discussion Paper with number 74.

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Date of creation: 1998
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Handle: RePEc:dgr:kubcen:199874

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Find related papers by JEL classification:
F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission

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(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Fidrmuc, Jarko & Korhonen, Iikka, 2001. "Similarity of supply and demand shocks between the Euro area and the CEECs," BOFIT Discussion Papers 14/2001, Bank of Finland, Institute for Economies in Transition. [Downloadable!]
    Other versions:
  2. Peter Huber, 2005. "Inter-regional Mobility in the Accession Countries: A Comparison to EU-15 Member States," WIFO Working Papers 249, WIFO. [Downloadable!]
  3. Jeffrey A. Frankel, 2008. "The Estimated Effects of the Euro on Trade: Why Are They Below Historical Effects of Monetary Unions Among Smaller Countries?," NBER Working Papers 14542, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  4. J. Fidrmuc & J. Fidrmuc, 2000. "Macroeconomic Developments in Slovakia and the EU Accession Process," Working Papers ir00007, International Institute for Applied Systems Analysis. [Downloadable!]
  5. Buiter, Willem H, 1999. "The EMU and the NAMU: What is the Case for North American Monetary Union?," CEPR Discussion Papers 2181, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  6. Fidrmuc, J. & Fidrmuc, J., 2000. "Integration, disintegration and trade in Europe : evolution of trade relations during the 1990s," Discussion Paper 12, Tilburg University, Center for Economic Research. [Downloadable!]
    Other versions:
  7. Jan Fidrmuc & Peter Huber, 2007. "Introduction," Empirica, Springer, vol. 34(4), pages 281-286, September. [Downloadable!] (restricted)
  8. Fidrmuc, Jarko & Korhonen, Iikka, 2004. "A meta-analysis of business cycle correlation between the euro area and CEECs: What do we know – and who cares?," BOFIT Discussion Papers 20/2004, Bank of Finland, Institute for Economies in Transition. [Downloadable!]
  9. Willem Buiter, 2008. "Economic, Political, and Institutional Prerequisites for Monetary Union Among the Members of the Gulf Cooperation Council," Open Economies Review, Springer, vol. 19(5), pages 579-612, November. [Downloadable!] (restricted)
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  10. Karen Chesnut, 2003. "The Impact of Economic Disintegration in Eastern Europe on Firms and Trade Patterns: An Exploration of the Effects and Policy Implications," NEURUS papers neurusp9, NEURUS - Network of European and US Regional and Urban Studies. [Downloadable!]
  11. Julius Horvath, 2004. "Optimum currency area theory: A selective review," Macroeconomics 0401014, EconWPA. [Downloadable!]
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  12. Jarko Fidrmuc, 2001. "The Endogeneity of the Optimum Currency Area Criteria, Intraindustry Trade, and EMU Enlargement," LICOS Discussion Papers 10601, LICOS - Centre for Institutions and Economic Performance, K.U.Leuven. [Downloadable!]
    Other versions:
  13. J. Fidrmuc & J. Fidrmuc, 2000. "Macroeconomic Developments in the Czech Republic and the EU Accession Process," Working Papers ir00008, International Institute for Applied Systems Analysis. [Downloadable!]
  14. Fidrmuc, Jan, 1999. "Stochastic Shocks and Incentives for (Dis)Integration," CEPR Discussion Papers 2104, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  15. Fidrmuc, Jarko, 2001. "The Endogeneity of optimum currency area criteria, intraindustry trade and EMU enlargement," BOFIT Discussion Papers 8/2001, Bank of Finland, Institute for Economies in Transition. [Downloadable!]
  16. Michael D. Bordo & Lars Jonung, 1999. "The Future of EMU: What Does the History of Monetary Unions Tell Us?," NBER Working Papers 7365, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  17. Fidrmuc, Jarko & Korhonen, Iikka, 2003. "The euro goes East. Implications of the 2000-2002 economic slowdown for synchronisation of business cycles between the euro area and CEEs," BOFIT Discussion Papers 6/2003, Bank of Finland, Institute for Economies in Transition. [Downloadable!]
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