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Euro Area Enlargement and Euro Adoption Strategies

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Author Info
Zsolt Darvas () (Institute of Economics - Hungarian Academy of Sciences)
Gyorgy Szapary () (Central European University)

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Abstract

The paper discusses the risks and challenges faced by the new members on the road to the euro and the strategies for and timing of euro adoption. We investigate the real-nominal convergence nexus from the perspective of euro area entry. We argue that the initial level of economic development as measured by per capita income and the speed of real convergence have a bearing on the strategies to follow and on the timing of entry into euro area. This is because the lower is the per capita income, the larger is the price level gap to close and the greater is the danger of credit booms and overheating. We argue that inflation targeting with floating rates is better suited than hard pegs to manage the price level catching-up process. We suggest a modification in the Maastricht inflation criterion which as currently defined has lost its economic logic.

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Publisher Info
Paper provided by Institute of Economics, Hungarian Academy of Sciences in its series IEHAS Discussion Papers with number 0824.

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Length: 45 pages
Date of creation: Nov 2008
Date of revision:
Handle: RePEc:has:discpr:0824

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Related research
Keywords: euro area; convergence; exchange rate; inflation;

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Find related papers by JEL classification:
E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General
F30 - International Economics - - International Finance - - - General

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References listed on IDEAS
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. Lieven Baele & Annalisa Ferrando & Peter Hördahl & Elizaveta Krylova & Cyril Monnet, 2004. "Measuring financial integration in the euro area," Occasional Paper Series 14, European Central Bank. [Downloadable!]
  2. Balázs Egert & Dubravko Mihaljek, 2007. "Determinants of House Prices in Central and Eastern Europe," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
    Other versions:
  3. Blanchard, Olivier J & Giavazzi, Francesco, 2004. "Improving the SGP Through a Proper Accounting of Public Investment," CEPR Discussion Papers 4220, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  4. Zsolt Darvas & György Szapáry, 2008. "Euro Area Enlargement and Euro Adoption Strategies," Working Papers 0801, Department of Mathematical Economics and Economic Analysis, Corvinus University of Budapest. [Downloadable!]
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Cited by:
(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. Olga Arratibel & Christophe Kamps & Nadine Leiner-Killinger, 2009. "Inflation forecasting in the new EU member states," Working Paper Series 1015, European Central Bank. [Downloadable!]
  2. Dubravko Mihaljek & Marc Klau, 2008. "Catching-up and inflation in transition economies: the Balassa-Samuelson effect revisited," BIS Working Papers 270, Bank for International Settlements. [Downloadable!]
  3. Zsolt Darvas, 2009. "Monetary Transmission in three Central European Economies: Evidence from Time-Varying Coefficient Vector Autoregressions," Working Papers 0903, Department of Mathematical Economics and Economic Analysis, Corvinus University of Budapest. [Downloadable!]
    Other versions:
  4. Karsten Staehr, 2008. "The Maastricht Inflation Criterion and the New EU Members from Central and Eastern Europe," Bank of Estonia Working Papers 2008-04, Bank of Estonia, revised 30 Oct 2008. [Downloadable!]
  5. Alan Ahearne & Herbert Brücker & Zsolt Darvas & Jakob von Weizsäcker, 2009. "Cyclical dimensions of labour mobility after EU enlargement," Working Papers 0902, Department of Mathematical Economics and Economic Analysis, Corvinus University of Budapest, revised 25 May 2009. [Downloadable!]
    Other versions:
  6. Barry Eichengreen & Katharina Steiner, 2008. "Is Poland at Risk of a Boom-and-Bust Cycle in the Run-Up to Euro Adoption?," NBER Working Papers 14438, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  7. Daniel Stavárek, 2009. "Assessment of the exchange rate convergence in Euro-candidate countries," The AMFITEATRU ECONOMIC journal, Academy of Economic Studies - Bucharest, Romania, vol. 11(25), pages 159-180, February. [Downloadable!]
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This page was last updated on 2009-11-25.

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