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Too Much to Lose, or More to Gain? Should Sweden Join the Euro?

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  • J. James Reade
  • Ulrich Volz

Abstract

This paper considers the costs and benefits of Sweden joining the European Economic and Monetary Union (EMU).� We pay particular attention to the costs of abandoning the krona in terms of a loss of monetary policy independence.� For this purpose, we apply a cointegrated VAR framework to examine the degree of monetary independence that the Sveriges Riksbank enjoys.� Our results suggest that Sweden has in fact relatively little to lose from joining EMU, at least in terms of monetary independence.� We complement our analysis by looking into other criteria affecting the cost-benefit calculus of monetary integration, which, by and large, support our positive assessment of Swedish EMU membership.

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Bibliographic Info

Paper provided by University of Oxford, Department of Economics in its series Economics Series Working Papers with number 442.

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Date of creation: 01 Aug 2009
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Handle: RePEc:oxf:wpaper:442

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Keywords: Swedish EMU membership; Monetary policy independence; European monetary integration; Cointegrated VAR method;

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References

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  1. Zeno Enders & Gernot J. Müller, 2010. "Has the Euro changed the Business Cycle?," Working Papers 162, Oesterreichische Nationalbank (Austrian Central Bank).
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  4. Söderström, Ulf, 2008. "Re-Evaluating Swedish Membership in EMU: Evidence from an Estimated Model," Working Paper Series 227, Sveriges Riksbank (Central Bank of Sweden).
  5. Willem H. Buiter, 2008. "Why the United Kingdom Should Join the Eurozone," International Finance, Wiley Blackwell, vol. 11(3), pages 269-282, December.
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  7. Nielsen, Bent & Rahbek, Anders, 2000. " Similarity Issues in Cointegration Analysis," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 62(1), pages 5-22, February.
  8. Reade, J. James & Volz, Ulrich, 2011. "Leader of the pack? German monetary dominance in Europe prior to EMU," Economic Modelling, Elsevier, vol. 28(1-2), pages 239-250, January.
  9. Soren Johansen, 2002. "A Small Sample Correction for the Test of Cointegrating Rank in the Vector Autoregressive Model," Econometrica, Econometric Society, vol. 70(5), pages 1929-1961, September.
  10. Fleming, J Marcus, 1971. "On Exchange Rate Unification," Economic Journal, Royal Economic Society, vol. 81(323), pages 467-88, September.
  11. Alexandra Ferreira-Lopes, 2008. "In or Out? The Welfare Costs of EMU Membership," Working Papers Series 1 ercwp1408, ISCTE-IUL, Business Research Unit (BRU-IUL).
  12. Engle, Robert F & Granger, Clive W J, 1987. "Co-integration and Error Correction: Representation, Estimation, and Testing," Econometrica, Econometric Society, vol. 55(2), pages 251-76, March.
  13. M. Hashem Pesaran & L. Vanessa Smith & Ron P. Smith, 2007. "What if the UK or Sweden had joined the euro in 1999? An empirical evaluation using a Global VAR," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 12(1), pages 55-87.
  14. Carlos Santos & David Hendry & Soren Johansen, 2008. "Automatic selection of indicators in a fully saturated regression," Computational Statistics, Springer, vol. 23(2), pages 317-335, April.
  15. Anders Møller Christensen & Heino Bohn Nielsen, 2009. "Monetary Policy in the Greenspan Era: A Time Series Analysis of Rules vs. Discretion," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 71(1), pages 69-89, 02.
  16. Lars Jonung & Jonas Vlachos, 2007. "The euro - what's in it for me? An economic analysis of the Swedish euro referendum of 2003," European Economy - Economic Papers 296, Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission.
  17. Emerson, Michael & Gros, Daniel & Italianer, Alexander & ,, 1992. "One Market, One Money: An Evaluation of the Potential Benefits and Costs of Forming an Economic and Monetary Union," OUP Catalogue, Oxford University Press, number 9780198773245.
  18. Michele Fratianni & Juergen Hagen, 1990. "German dominance in the EMS," Open Economies Review, Springer, vol. 1(1), pages 67-87, February.
  19. Willem H. Buiter, 2000. "Optimal currency areas: why does the exchange rate regime matter? (with an application to UK membership in EMU)," LSE Research Online Documents on Economics 20178, London School of Economics and Political Science, LSE Library.
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Citations

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Cited by:
  1. D'Adamo, Gaetano, 2010. "Estimating Central Bank preferences in a small open economy: Sweden 1995-2009," MPRA Paper 26575, University Library of Munich, Germany.
  2. Herbert S. Buscher & Hubert Gabrisch, 2011. "What Might Central Banks Lose or Gain in Case of Euro Adoption – A GARCH-Analysis of Money Market Rates for Sweden, Denmark and the UK," IWH Discussion Papers 9, Halle Institute for Economic Research.
  3. Łukasz Goczek & Dagmara Mycielska, 2013. "Ready for euro? Empirical study of the actual monetary policy independence in Poland," Working Papers 2013-13, Faculty of Economic Sciences, University of Warsaw.
  4. Łukasz Goczek & Dagmara Mycielska, 2013. "Long-run interest rate convergence in Poland and the EMU," Working Papers 2013-21, Faculty of Economic Sciences, University of Warsaw.

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