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Adopting the euro in Hungary: expected costs, benefits and timing

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  • Attila Csajbók (ed.)

    ()
    (Magyar Nemzeti Bank)

  • Ágnes Csermely (ed.)

    ()
    (Magyar Nemzeti Bank)

Abstract

Accession to the Economic and Monetary Union is one of the most important steps in Hungary's European integration, which will entail abandoning the national currency and adopting the euro as domestic legal tender. For Hungary as a new member state in the EU, introduction of the euro will not be an option but an obligation. Nevertheless, new EU members will have some leeway to set the date of adopting the euro1. Therefore, it is useful to analyse the likely costs and benefits of joining the euro area for Hungary and to define the choice of medium-term economic policy strategy in the light of the results of this analysis. The National Bank of Hungary would like to contribute to the formulation of an economic policy strategy by issuing this volume, which contains a cost-benefit analysis of the likely effects of the country's joining the euro area. This analysis is confined strictly to the economic benefits and costs of introducing the euro and is not intended to examine its other possible impacts, including, for example, the implications for politics and national security. Adopting the euro will likely have a permanent impact on Hungarian economic growth. This impact will become evident through numerous channels. Bank staff have attempted to quantify and sum up the extent of this impact transmitted through the various channels. The findings of this analysis suggest that the introduction of the euro will bring about significant net gains in growth. However, welfare is influenced not only by the level and rate of GDP growth, but their stability as well. A widely fluctuating national income will produce lower welfare than a more stable one, even if on average the two income levels are identical. For this reason, it is important to examine whether joining the euro area will increase or mitigate the volatility of business cycles. In other words, the key question is whether Hungary and the euro area form an optimum currency area, that is whether the monetary policy of the euro area is capable of adequately substituting independent Hungarian monetary policy in smoothing out cyclical fluctuations. In the findings of this analysis, the euro area seems to be in most respects at least as optimal a currency area for Hungary as for less developed euro area member countries.

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Bibliographic Info

Paper provided by Magyar Nemzeti Bank (the central bank of Hungary) in its series MNB Occasional Papers with number 2002/24.

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Length: 208 pages
Date of creation: 2002
Date of revision:
Handle: RePEc:mnb:opaper:2002/24

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Keywords: currency union; convergence; monetary policy; fiscal policy.;

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References

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Cited by:
  1. Ansgar Belke & Ralph Setzer, 2003. "Costs of Exchange Rate Volatility for Labour Markets - Empirical Evidence from the CEE Economies," The Economic and Social Review, Economic and Social Studies, vol. 34(3), pages 267–292.
  2. Zsolt Darvas & György Szapáry, 2008. "Business Cycle Synchronization in the Enlarged EU," Open Economies Review, Springer, vol. 19(1), pages 1-19, February.
  3. Federico Ravenna & Giovanni Lombardo, 2009. "Trade and Optimal Monetary Policy," 2009 Meeting Papers 784, Society for Economic Dynamics.
  4. Jarko Fidrmuc & Iikka Korhonen, 2006. "Meta-Analysis of the Business Cycle Correlation between the Euro Area and the CEECs," CESifo Working Paper Series 1693, CESifo Group Munich.
  5. Alexandra Lopes, 2006. "The Costs of EMU for Transition Countries," Computing in Economics and Finance 2006 149, Society for Computational Economics.
  6. Sandra Dvorsky, 2004. "Central Bank Independence in Southeastern Europe with a View to Future EU Accession," Focus on European Economic Integration, Oesterreichische Nationalbank (Austrian Central Bank), issue 2, pages 50-75.
  7. Peter Backé & Christian Thimann & Olga Arratibel & Oscar Calvo-Gonzalez & Arnaud Mehl & Carolin Nerlich, 2004. "The acceding countries’ strategies towards ERM II and the adoption of the euro - an analytical review," Occasional Paper Series 10, European Central Bank.
  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.
  9. Belke, Ansgar & Setzer, Ralph, 2004. "Exchange Rate Volatility and Employment Growth: Empirical Evidence from the CEE Economies," IZA Discussion Papers 1038, Institute for the Study of Labor (IZA).
  10. Coricelli, Fabrizio & Ercolani, Valerio, 2002. "Cyclical and Structural Deficits on the Road to Accession: Fiscal Rules for an Enlarged European Union," CEPR Discussion Papers 3672, C.E.P.R. Discussion Papers.
  11. Hughes Hallett, Andrew & Lewis, John, 2007. "Debt, deficits, and the accession of the new member States to the Euro," European Journal of Political Economy, Elsevier, vol. 23(2), pages 316-337, June.
  12. Crespo Cuaresma, Jesus & Wojcik, Cezary, 2006. "Measuring monetary independence: Evidence from a group of new EU member countries," Journal of Comparative Economics, Elsevier, vol. 34(1), pages 24-43, March.
  13. Paul de Grauwe & Gunther Schnabl, 2004. "Nominal versus Real Convergence with Respect to EMU Accession.How to Cope with the Balassa-Samuelson Dilemma," EUI-RSCAS Working Papers 20, European University Institute (EUI), Robert Schuman Centre of Advanced Studies (RSCAS).

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