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Slovakia: A Catching Up Euro Area Member In and Out of the Crisis

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  • Fidrmuc, Jarko

    ()
    (Zeppelin University)

  • Klein, Caroline

    ()
    (OECD)

  • Price, Robert

    (affiliation not available)

  • Wörgötter, Andreas

    ()
    (OECD, Paris)

Abstract

The Slovak economy experienced a strong but short recession in 2009. The recovery afterwards was driven by exports and investment. While GDP growth was one of the strongest in OECD, employment did not reach the pre-crisis level and unemployment remains stubbornly high. This paper argues that Slovakia joined the euro area after a period of unprecedented real appreciation, which generated a threat for competitiveness of its export-oriented manufacturing industry. The response combined internal devaluation with productivity increasing measures, including capital deepening and laying off low productivity workers. While this strategy was successfully restoring an external equilibrium, its consequences for domestic demand and employment are less positive. This development is compared with Estonia and Slovenia, two other small and very open economies, recently entering the euro area.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Policy Papers with number 55.

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Length: 24 pages
Date of creation: Mar 2013
Date of revision:
Handle: RePEc:iza:izapps:pp55

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Keywords: Slovak Republic; Estonia; Slovenia; crisis; job-less recovery; domestic demand;

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  1. Fidrmuc, Jarko & Hainz, Christa, 2010. "Default rates in the loan market for SMEs: Evidence from Slovakia," Economic Systems, Elsevier, vol. 34(2), pages 133-147, June.
  2. Égert, Balázs, 2011. "Catching-up and inflation in Europe: Balassa-Samuelson, Engel's Law and other culprits," Economic Systems, Elsevier, vol. 35(2), pages 208-229, June.
  3. Jeffrey Frankel & Andrew Rose, 2002. "An Estimate Of The Effect Of Common Currencies On Trade And Income," The Quarterly Journal of Economics, MIT Press, vol. 117(2), pages 437-466, May.
  4. Brixiova, Zuzana & Vartia, Laura & Wörgötter, Andreas, 2010. "Capital flows and the boom-bust cycle: The case of Estonia," Economic Systems, Elsevier, vol. 34(1), pages 55-72, March.
  5. Martin Berka & Michael B. Devereux & Charles Engel, 2012. "Real Exchange Rate Adjustment in and out of the Eurozone," American Economic Review, American Economic Association, vol. 102(3), pages 179-85, May.
  6. Zuzana Brixiova & Balazs Egert, 2012. "Labour Market Reforms And Outcomes In Estonia," William Davidson Institute Working Papers Series wp1027, William Davidson Institute at the University of Michigan.
  7. Karsten Staehr, 2010. "The global financial crisis and public finances in the New EU Countries from Central and Eastern Europe," Bank of Estonia Working Papers wp2010-02, Bank of Estonia, revised 04 Feb 2010.
  8. Backé, Peter & Wójcik, Cezary, 2008. "Credit booms, monetary integration and the new neoclassical synthesis," Journal of Banking & Finance, Elsevier, vol. 32(3), pages 458-470, March.
  9. Isabell Koske, 2009. "Achieving Fiscal Flexibility and Safeguarding Sustainability: The Case of Slovakia," OECD Economics Department Working Papers 681, OECD Publishing.
  10. repec:wdi:papers:2011-1027 is not listed on IDEAS
  11. Matthieu Bussière & Jarko Fidrmuc & Bernd Schnatz, 2008. "EU Enlargement and Trade Integration: Lessons from a Gravity Model," Review of Development Economics, Wiley Blackwell, vol. 12(3), pages 562-576, 08.
  12. Jarko Fidrmuc & Matus Senaj, 2012. "Human Capital, Consumption, and Housing Wealth in Transition," Working and Discussion Papers WP 2/2012, Research Department, National Bank of Slovakia.
  13. Andrés Fuentes, 2007. "Improving Employment Prospects in the Slovak Republic: Building on Past Reforms," OECD Economics Department Working Papers 579, OECD Publishing.
  14. Nienke Oomes, 2005. "Maintaining Competitiveness Under Equilibrium Real Appreciation," IMF Working Papers 05/65, International Monetary Fund.
  15. Manfred Fluch & Helmut Stix, 2005. "Perceived Inflation in Austria – Extent, Explanations, Effects," Monetary Policy & the Economy, Oesterreichische Nationalbank (Austrian Central Bank), issue 3, pages 22–47.
  16. Brachinger, Hans Wolfgang, 2008. "A new index of perceived inflation: Assumptions, method, and application to Germany," Journal of Economic Psychology, Elsevier, vol. 29(4), pages 433-457, August.
  17. Felix Hüfner & Isabell Koske, 2008. "The Euro Changeover in the Slovak Republic: Implications for Inflation and Interest Rates," OECD Economics Department Working Papers 632, OECD Publishing.
  18. Guillermo A. Calvo & Fabrizio Coricelli & Pablo Ottonello, 2012. "Labor Market, Financial Crises and Inflation: Jobless and Wageless Recoveries," NBER Working Papers 18480, National Bureau of Economic Research, Inc.
  19. Zuzana Brixiova & Margaret Morgan & Andreas Wörgötter, 2009. "Estonia and Euro Adoption: Small Country Challenges of Joining EMU," OECD Economics Department Working Papers 728, OECD Publishing.
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