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Costs and benefits of Slovakia entering the euro area. A quantitative evaluation

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  • Juraj Zeman

    ()
    (National Bank of Slovakia, Research Department)

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    Abstract

    Entering monetary union brings both benefits and costs. The loss of an independent monetary policy, including the loss of exchange rate policy, constrains the ability to stabilize the domestic economy in the event of asymmetric shocks. This leads to more volatile business cycles and hence lower utility of risk-averse agents in the economy. On the other hand, the common currency reduces transaction costs, thus increasing trade and growth. The objective of this article is to quantitatively evaluate these costs and benefits, using an estimated two-country DSGE model for Slovakia and the euro area.

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    File URL: http://www.nbs.sk/_img/Documents/PUBLIK/WP_1-2012.pdf
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    Bibliographic Info

    Paper provided by Research Department, National Bank of Slovakia in its series Working and Discussion Papers with number WP 1/2012.

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    Length: 31 pages
    Date of creation: Apr 2012
    Date of revision:
    Handle: RePEc:svk:wpaper:1016

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    Keywords: monetary union; costs and benefits; two-country DSGE;

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