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The long run-effects of the Poland's accession to the eurozone. Simulation using POLDYN - a dynamic computable general equilibrium model

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  • Daras, Tomasz
  • Hagemejer, Jan

Abstract

The aim of this paper is to assess the non-monetary effects of the euro accession of Poland. The literature identifies two channels that potentially may affect the economy: (i) diminishing of investment risk premia through lower interest rates and cost of capital services and (ii) trade creation effects due to elimination of currency transaction spreads, better price comparability and elimination of currency risk. We employ a dynamic general equilibrium model with perfect foresight multiple households, adjustment cost of capital, disaggregated labor market. We directly model trade-driven productivity spillovers. Our simulations show a long run GDP gain from the euro accession at the level of 7.5% of benchmark GDP of which 90% is realized in first 10 years. The main factor behind growth is investment that leads to an extra 12.6 percent of extra capital accumulated in the long run. The welfare gains amount to roughly 2% of the value of GDP each year. The sensitivity analysis proves that the model behavior is reasonably resistant to parameter changes.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 15760.

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Date of creation: Jun 2008
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Handle: RePEc:pra:mprapa:15760

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Keywords: dynamic computable general equilibrium; trade creation; monetary integration; Poland;

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References

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  1. Torsten Persson, 2001. "Currency unions and trade: how large is the treatment effect?," Economic Policy, CEPR;CES;MSH, CEPR;CES;MSH, vol. 16(33), pages 433-462, October.
  2. Russell W. Cooper & John C. Haltiwanger, 2000. "On the Nature of Capital Adjustment Costs," NBER Working Papers 7925, National Bureau of Economic Research, Inc.
  3. James E. Anderson & Eric van Wincoop, 2003. "Gravity with Gravitas: A Solution to the Border Puzzle," American Economic Review, American Economic Association, American Economic Association, vol. 93(1), pages 170-192, March.
  4. Baldwin, Richard E., 2006. "The euro’s trade effects," Working Paper Series, European Central Bank 0594, European Central Bank.
  5. Alejandro Micco & Ernesto H. Stein & Guillermo Luis Ordoñez, 2003. "The Currency Union Effect on Trade: Early Evidence from EMU," Research Department Publications, Inter-American Development Bank, Research Department 4339, Inter-American Development Bank, Research Department.
  6. Maryla Maliszewska, 2004. "New Member States' Trading Potential Following EMU Accession: A Gravity Approach," CASE Network Studies and Analyses, CASE-Center for Social and Economic Research 0286, CASE-Center for Social and Economic Research.
  7. Andrew K. Rose, 1999. "One Money, One Market: Estimating the Effect of Common Currencies on Trade," NBER Working Papers 7432, National Bureau of Economic Research, Inc.
  8. Lau, Morten I. & Pahlke, Andreas & Rutherford, Thomas F., 2002. "Approximating infinite-horizon models in a complementarity format: A primer in dynamic general equilibrium analysis," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 26(4), pages 577-609, April.
  9. Jakob B. Madsen, 2005. "Technology Spillover through Trade and TFP Convergence: 120 Years of Evidence for the OECD Countries," EPRU Working Paper Series, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics 05-01, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics.
  10. Hildegunn Ekroll Stokke & Jørn Rattsø & Xinshen Diao, 2001. "International spillovers, productivity growth and openness in Thailand: An intertemporal general equilibrium analysis," Working Paper Series, Department of Economics, Norwegian University of Science and Technology 2202, Department of Economics, Norwegian University of Science and Technology.
  11. Uzawa, H, 1969. "Time Preference and the Penrose Effect in a Two-Class Model of Economic Growth," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 77(4), pages 628-52, Part II, .
  12. Andrew K. Rose & Eric van Wincoop, 2001. "National Money as a Barrier to International Trade: The Real Case for Currency Union," American Economic Review, American Economic Association, American Economic Association, vol. 91(2), pages 386-390, May.
  13. Michał Gradzewicz & Krzysztof Makarski, 2009. "The Macroeconomic Effects of Losing Autonomous Monetary Policy after the Euro Adoption in Poland," National Bank of Poland Working Papers, National Bank of Poland, Economic Institute 58, National Bank of Poland, Economic Institute.
  14. Diao, Xinshen & Rattsø, Jørn & Stokke, Hildegunn Ekroll, 2002. "International spillovers, productivity growth and openness in Thailand," TMD discussion papers 89, International Food Policy Research Institute (IFPRI).
  15. Jakub Borowski, 2004. "Costs and Benefits of Poland's EMU Accession: a Tentative Assessment," Comparative Economic Studies, Palgrave Macmillan, vol. 46(1), pages 127-145, March.
  16. Madsen, Jakob B., 2007. "Technology spillover through trade and TFP convergence: 135 years of evidence for the OECD countries," Journal of International Economics, Elsevier, Elsevier, vol. 72(2), pages 464-480, July.
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Cited by:
  1. Michał Brzoza-Brzezina & Pascal Jacquinot & Marcin Kolasa, 2011. "Can we prevent boom-bust cycles during euro area accession?," National Bank of Poland Working Papers, National Bank of Poland, Economic Institute 79, National Bank of Poland, Economic Institute.

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