Convergence and shocks in the road to EU: Empirical investigations for Bulgaria and Romania
AbstractDespite their progress Bulgaria and Romania significantly differ from the EU economies. In this article, on the basis of the theoretical and empirical achievements of the theory of optimal and (endogenous) currency areas we study to what extent the two South European economies are able to adopt the common economic (and above all monetary) policy of the EU, and to what extent the convergence to the EU stimulates the economic development of these countries. Despite the similarities, the two countries now differ fundamentally in their choice of a monetary regime – while Romania uses inflation targeting and a flexible exchange rate, Bulgaria has adopted a currency board regime. For this purpose we analyze: (i) the degree of nominal, real and financial convergence and synchronization of the economic cycle with that of the European Union (using unconditional ß convergence approach). Income and price levels, inflation rate, interest rate, monetary aggregates, credit, productivity etc. are among the studied variables; (ii) the resistance to different external and internal shocks (using VAR model) as well as (iii) the mechanisms for balancing and absorption of these shocks. To give a better comparative picture we compose the panel including Hungary and Czech Republic.
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Bibliographic InfoPaper provided by William Davidson Institute at the University of Michigan in its series William Davidson Institute Working Papers Series with number wp810.
Date of creation: 01 Feb 2006
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convergence; shocks; EU enlargement; Bulgaria and Romania;
Find related papers by JEL classification:
- E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
- F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance
- P2 - Economic Systems - - Socialist Systems and Transition Economies
This paper has been announced in the following NEP Reports:
- NEP-ALL-2006-07-02 (All new papers)
- NEP-CBA-2006-07-02 (Central Banking)
- NEP-EEC-2006-07-02 (European Economics)
- NEP-FDG-2006-07-02 (Financial Development & Growth)
- NEP-FMK-2006-07-02 (Financial Markets)
- NEP-MAC-2006-07-02 (Macroeconomics)
- NEP-TRA-2006-07-02 (Transition Economics)
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