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Adopting the Euro in Central Europe

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  • International Monetary Fund
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    Abstract

    Upon entry into the European Union, countries become members of the Economic and Monetary Union (EMU), with a derogation from adopting the euro as their currency (that is, each country joining the EU commits to replace its national currency with the euro, but can choose when to request permission to do so). For most of these countries, adopting the euro will entail major economic change. This paper examines likely economic developments and policy challenges for the five former transition countries in central Europe--the Czech Republic, Hungary, Poland, the Slovak Republic, and Slovenia--that joined the European Union in May 2004 and operate under independent monetary policies but have not yet achieved policy convergence with the rest of the euro area.

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    Bibliographic Info

    Paper provided by International Monetary Fund in its series IMF Occasional Papers with number 234.

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    Length: 148
    Date of creation: 14 Apr 2005
    Date of revision:
    Handle: RePEc:imf:imfocp:234

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    Keywords: Euro; exchange rate; inflation; monetary policy; exchange rates; foreign exchange; real exchange rate; inflation targeting; exchange rate stability; real exchange rates; banking; exchange rate volatility; correlations; nominal exchange rate; real interest rates; currency unions; correlation; fiscal adjustment; bank credit; exchange rate regimes; fiscal multipliers; inflation rates; exchange rate changes; fiscal consolidation; fiscal deficits; fiscal impulse; public debt; banking sector; capital adequacy; exchange rate fluctuations; fiscal policy; cluster analysis; fiscal deficit; exchange rate flexibility; price stability; capital adequacy ratio; market exchange rate; foreign exchange market; exchange rate mechanism; trade gains; low inflation; real interest rate; exchange rate targeting; currency areas; exchange rate movements; equilibrium exchange rate; macroeconomic stability; banking crisis; inflation target; trade creation; statistics; flexible exchange rates; relative prices; financial statistics; exchange rate risk; inflation objective; relative price; structural fiscal; fixed exchange rates; price inflation; currency boards; exchange rate band; exchange rate regime; effective exchange rates; exchange rate instrument; unemployment; standard deviation; employment; exchange rate target; fiscal balances; high interest rates; fluctuation margins; flexible exchange rate; nominal exchange rates; aggregate demand; bank lending; bank loans; bilateral trade; standard deviations; fiscal balance; real exchange rate volatility; nominal interest rates; primary deficit; banking sectors; tax revenues; fiscal contractions; average exchange rate; real wages; fixed exchange rate; effective exchange rate; exchange risk; inflation targeting framework; financial stability; nominal interest rate; fiscal adjustments; fiscal positions; expansionary fiscal; fiscal decentralization; expansionary fiscal contractions; output growth; exchange reserves; expenditure restraint; fiscal stance; foreign exchange reserves; average inflation; exchange rate variations; foreign currency; floating exchange rates; inflation rate; real effective exchange rate; exchange rate variability; employment protection; inflation convergence; exchange rate arrangements; banking distress; bilateral exchange rates; bank lending rates; trade flows; error variance; general equilibrium models; exchange rate shocks; equations; overvalued exchange rate; bank for international settlements; monetary union; bank supervision; bank entry; international financial statistics; unemployment rates; banking crises; bond; total unemployment; government budget; tax revenue; budget deficits; account deficits; fiscal multiplier; exchange rate behavior; foreign exchange markets; taxation; expenditure cuts; tax collection; exchange rate adjustment; local government expenditures; public investment spending; fiscal sustainability; area trade; fiscal devolution; government expenditures; exchange rate policies; real value; accession countries; trade diversion; fiscal policies; government revenue; tax increases; actual inflation; real effective exchange rates; nominal bilateral exchange rates; exchange markets; exchange rate bands; macroeconomic performance; price level; exchange rate policy; money supply; real rate of interest; speculative exchange rate; fiscal criterion; budget deficit; fiscal behavior; fiscal reforms; tax reform; safeguard clause; equal treatment; full liberalization; balance of payments; expenditure reform; fiscal consolidations; fiscal situation; budget balances; fiscal implications; foreign exchange restrictions; tax burden; fiscal impact; reducing fiscal deficits; fiscal costs; tax systems; intermediate exchange rate; public finance; fiscal policy variables; fiscal contraction; exchange rate pressures; exchange rate crises; government budget deficits; fiscal accounts; government spending; fiscal restraint; fiscal consolidation on growth; fiscal cost; exchange market intervention; fiscal position; fiscal discipline; intergovernmental transfers; fiscal revenues; fiscal expansion; public finances; fiscal reform; home currency; exchange restrictions; fiscal stabilizers; exchange rate arrangement; primary fiscal deficits; government deficit; tax rates; budgetary discipline; primary expenditure; effect of exchange rate changes; net fiscal cost; intermediate exchange rate regimes; fiscal policy objectives; structural fiscal reforms; fiscal imbalances; exchange rate margins; exchange rate floats; trade impact; average trade; trade agreements; free trade; factor markets; trade data; free trade agreements; volume of trade; bilateral trade flows; per capita income; pattern of trade; asymmetric shocks; competitive pressures; competitive position; trade patterns; trade relationships; exchange rate dynamics; economic instability; fixed exchange rate regimes; average inflation rate; reduction in inflation; exchange rate pass; real exchange rate movements; real rates; monetary economics; currency substitution; real exchange rate changes; exchange rate targets; fixed exchange rate regime; exchange rate appreciation; average rate of inflation; real exchange rate fluctuations; currency appreciation; exchange rate system; annual inflation; exchange rate uncertainty; real exchange rate appreciation; exchange market stability; lower inflation; current exchange rates; currency pegs; inflationary pressures; real money; rate of inflation; increase in inflation; exchange rate instability; exchange rate risks; interbank market; banking system; banking sector distress; banking sector fragilities; banks? liabilities; bank borrowing; financial services; derivatives markets; unemployed; bond market capitalization; employment protection legislation; financial markets; reserve requirement; derivative; labor force participation; banks? balance sheets; bank loan; foreign asset; banking sector assets; bank insolvency; bank entry restrictions; return on investment; bank credit ceilings; bank management; currency derivatives; sample mean; vector autoregression; covariances; statistical methods; surveys; sampling; unemployment rate; equilibrium model; evidence of trade diversion; graphical analysis; outliers; equation; data analysis; bond market; government bonds; financial sector; employment ratios; derivative markets; labor force participation rates; bonds; labor force survey; equity derivatives; equity markets; probability; financial institutions; curve equation; samples;

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    Cited by:
    1. Jan Babecky & Ales Bulir & Katerina Smidkova, 2011. "Sustainable Real Exchange Rates in the New EU Member States: What Did the Great Recession Change?," Working Papers 2011/01, Czech National Bank, Research Department.
    2. Irène Andreou & Aleksandra Zdzienicka, 2009. "Financial Vulnerability in the Central and Eastern European Countries," Working Papers 0907, Groupe d'Analyse et de Théorie Economique (GATE), Centre national de la recherche scientifique (CNRS), Université Lyon 2, Ecole Normale Supérieure.
    3. Bulir, Ales & Hurnik, Jaromir, 2006. "The Maastricht inflation criterion: How unpleasant is purgatory?," Economic Systems, Elsevier, vol. 30(4), pages 385-404, December.
    4. Travis Mitchell & Roland Craigwell & DeLisle Worrell, 2006. "A Small Foreign Exchange Market with a Long-Term Peg: Barbados," IMF Working Papers 06/245, International Monetary Fund.
    5. Michał Brzoza-Brzezina & Pascal Jacquinot & Marcin Kolasa, 2011. "Can we prevent boom-bust cycles during euro area accession?," National Bank of Poland Working Papers 79, National Bank of Poland, Economic Institute.
    6. Ales Bulir & Katerina Smidkova, 2004. "Exchange Rates in the New EU Accession Countries: What Have We Learned from the Forerunners," Working Papers 2004/10, Czech National Bank, Research Department.
    7. Agnieszka Stążka-Gawrysiak, 2011. "Poland on the road to the euro: How serious is the risk of boom-bust cycles after the euro adoption? An empirical analysis," National Bank of Poland Working Papers 103, National Bank of Poland, Economic Institute.
    8. Enrique Alberola & Luis Molina & Pedro del Río, 2012. "Boom-bust cycles, imbalances and discipline in Europe," Banco de Espa�a Working Papers 1220, Banco de Espa�a.

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