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EMU enlargement towards CEEC’s : risks of sector-based and geographic asymmetric shocks

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  • Jérôme Trotignon

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    (GATE CNRS Université Lyon 2)

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    Abstract

    The future membership of CEECs in the eurozone involves the risk of external asymmetric shocks, due to too strong a dependence on one sector or one customer country. By defining two indicators - sector-based and geographic - of exposure to shocks, taking into account the symmetry of the export structures of a candidate state with the EMU and the opening rate of the candidate state, we are able to draw up a classification of countries according to the fulfillment of Kenen’s criterion, revised and transposed to the geographic variety of exports. The results, compared with those of the two countries of the EMU which are most sensitive to sector-based and geographic shocks (Finland and Ireland), testify to a generally pronounced exposure to shocks. An inventory of the pairs country / branch and country / destination at the origin of shocks with strong macroeconomic impact shows that Bulgaria and Slovakia, and even more Estonia and Latvia, are exposed to major risks. Thus, these two small economies would be well advised to create a cyclical stabilization fund before envisaging joining the EMU. Against the thesis of the endogeneity of the OCAs (optimum currency areas), this recommendation remains valid, insofar as the increase in the share of intra-industry trade between the EMU and a candidate state does not necessarily entail a convergence of multilateral sector-based export structures.

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    File URL: ftp://ftp.gate.cnrs.fr/RePEc/2003/0309.pdf
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    Bibliographic Info

    Paper provided by Groupe d'Analyse et de Théorie Economique (GATE), Centre national de la recherche scientifique (CNRS), Université Lyon 2, Ecole Normale Supérieure in its series Working Papers with number 0309.

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    Length: 16 pages
    Date of creation: Sep 2003
    Date of revision:
    Handle: RePEc:gat:wpaper:0309

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    Keywords: Central and Eastern European countries; external asymmetric shock; Kenen's criterion; optimum currency area; symmetry of export structures;

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    References

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    1. Laurence Boone & Mathilde Maurel, 1999. "L'ancrage de l'Europe centrale et orientale à l'Union européenne," Revue économique, Presses de Sciences-Po, vol. 0(6), pages 1123-1137.
    2. Frankel, Jeffrey A & Rose, Andrew K, 1998. "The Endogeneity of the Optimum Currency Area Criteria," Economic Journal, Royal Economic Society, vol. 108(449), pages 1009-25, July.
    3. Tamim Bayoumi and Barry Eichengreen., 1996. "Ever Closer to Heaven? An Optimum-Currency-Area Index for European Countries," Center for International and Development Economics Research (CIDER) Working Papers C96-078, University of California at Berkeley.
    4. Mongelli, Francesco Paolo, 2002. ""New" views on the optimum currency area theory: what is EMU telling us?," Working Paper Series 0138, European Central Bank.
    5. Lionel Fontagné, 1999. "Spécialisation et asymétrie des chocs en union monétaire," Revue Française d'Économie, Programme National Persée, vol. 14(2), pages 107-162.
    6. Barry Eichengreen., 1993. "International Monetary Arrangements for the 21st Century," Center for International and Development Economics Research (CIDER) Working Papers C93-021, University of California at Berkeley.
    7. Andrew K. Rose, 1999. "One Money, One Market: Estimating the Effect of Common Currencies on Trade," NBER Working Papers 7432, National Bureau of Economic Research, Inc.
    8. Finger, J M & Kreinin, M E, 1979. "A Measure of 'Export Similarity' and Its Possible Uses," Economic Journal, Royal Economic Society, vol. 89(356), pages 905-12, December.
    9. Bennett T. McCallum, 1999. "Theoretical Issues Pertaining to Monetary Unions," NBER Working Papers 7393, National Bureau of Economic Research, Inc.
    10. Francoise Lemoine & Michael Freudenberg, 1999. "Les pays d’Europe centrale et orientale dans la division du travail en Europe," Economie Internationale, CEPII research center, issue 80, pages 3-36.
    11. Agnès Bénassy-Quéré & Amina Lahrèche-Revil, 1998. "Pegging the CEECs Currencies to the Euro," Working Papers 1998-04, CEPII research center.
    12. Jeffrey A. Frankel, 1999. "No Single Currency Regime is Right for All Countries or At All Times," NBER Working Papers 7338, National Bureau of Economic Research, Inc.
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