Early Locking to the Euro: Some Estimates for the New EU Countries based on Equilibrium Exchange Rates

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Early Locking to the Euro: Some Estimates for the New EU Countries based on Equilibrium Exchange Rates

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Martin Melecky

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Martin Melecký

Abstract

The ECB recommends to prospective euro-area members that they choose the central parities, for fixing their currencies against the euro, consistent with a broad range of economic indicators while taking account of the market rate as well. In this paper, we estimate a behavioral model of the real exchange rates for a group of the EU 5 countries, along with equilibrium real exchange rates. In addition, we propose a methodology for estimating an optimal timing for ERM II entry based on convergence properties of the equilibrium real exchange rate. We find that the estimated optimal timing for ERM II entry derived from the analysis of the equilibrium real exchange rate suggests that fixing the national currencies of the EU 5 countries in forthcoming years would not be in contradiction with the convergence properties of the real equilibrium exchange rate.

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Paper provided by EconWPA in its series International Finance with number 0503008.

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Length: 32 pages
Date of creation: 29 Mar 2005
Date of revision:
Handle: RePEc:wpa:wuwpif:0503008

Note: Type of Document - pdf; pages: 32
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Find related papers by JEL classification:
C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation and Testing
C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Other Model Applications
E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
F31 - International Economics - - International Finance - - - Foreign Exchange

This paper has been announced in the following NEP Reports:

NEP-ALL-2005-04-16 (All new papers)
NEP-EEC-2005-04-16 (European Economics)
NEP-IFN-2005-04-16 (International Finance)
NEP-MAC-2005-04-16 (Macroeconomics)
NEP-MON-2005-04-16 (Monetary Economics)

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