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The euro goes East. Implications of the 2000-2002 economic slowdown for synchronisation of business cycles between the euro area and CEEs

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Author Info
Iikka Korhonen (Bank of Finland Institute for Economies in Transition, BOFIT)
Jarko Fidrmuc (Oesterreichische Nationalbank)

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Abstract

We assess the correlation of supply and demand shocks between current countries in the euro area and EU accession candidates from 1993/1995 to 2002. Supply and demand shocks are recovered from estimated structural VAR models of output growth and inflation. Notably, the economic slowdown between 2000 and 2002 increased heterogeneity of business cycles between the euro area and acceding counties. We find that several acceding countries have a quite high correlation of underlying shocks with the euro area and conclude that continuing integration within the EU is likely to align the business cycles of these countries in a manner similar to the synchronisation of supply and demand shocks we document for the EU in the 1990s.

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Paper provided by EconWPA in its series Macroeconomics with number 0305007.

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Length: 24 pages
Date of creation: 28 May 2003
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Handle: RePEc:wpa:wuwpma:0305007

Note: Type of Document - pdf; prepared on IBM PC ; to print on HP/PostScript/Franciscan monk; pages: 24 ; figures: included
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Related research
Keywords: Optimum currency area; EU enlargement; structural VAR;

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Find related papers by JEL classification:
E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Frankel, Jeffrey A & Rose, Andrew K, 1998. "The Endogeneity of the Optimum Currency Area Criteria," Economic Journal, Royal Economic Society, vol. 108(449), pages 1009-25, July. [Downloadable!] (restricted)
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  2. Fidrmuc, Jarko & Iikka Korhonen, 2003. "Similarity of Supply and Demand Shocks Between the Euro Area and the CEECs," Royal Economic Society Annual Conference 2003 77, Royal Economic Society. [Downloadable!]
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  3. Nauro F. Campos & Fabrizio Coricelli, 2002. "Growth in Transition: What We Know, What We Don't, and What We Should," William Davidson Institute Working Papers Series 470, William Davidson Institute at the University of Michigan Stephen M. Ross Business School. [Downloadable!]
    Other versions:
  4. Kutan, Ali M. & Yigit, Taner M., 2004. "Nominal and real stochastic convergence of transition economies," Journal of Comparative Economics, Elsevier, vol. 32(1), pages 23-36, March. [Downloadable!] (restricted)
  5. Fidrmuc, Jan & Horvath, Julius & Fidrmuc, Jarko, 1999. "The Stability of Monetary Unions: Lessons from the Breakup of Czechoslovakia," Journal of Comparative Economics, Elsevier, vol. 27(4), pages 753-781, December. [Downloadable!] (restricted)
  6. Iikka Korhonen, 2002. "Some empirical tests on the integration of economic activity between the euro area and the accession countries," Macroeconomics 0209006, EconWPA. [Downloadable!]
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  7. Maurel, Mathilde, 2002. "On the Way of EMU Enlargement towards CEECs: What is the Appropriate Exchange Rate Regime?," CEPR Discussion Papers 3409, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  8. Fidrmuc, Jan & Horvath, Julius & Fidrmuc, Jarko, 1999. "Stability of Monetary Unions: Lessons from the Break-up of Czechoslovakia," Transition Economics Series 10, Institute for Advanced Studies. [Downloadable!]
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  9. Tamim Bayoumi & Barry Eichengreen, 1992. "Shocking Aspects of European Monetary Unification," NBER Working Papers 3949, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  10. Jarko Fidrmuc, 2001. "The Endogeneity of the Optimum Currency Area Criteria, Intraindustry Trade, and EMU Enlargement," LICOS Discussion Papers 10601, LICOS - Centre for Institutions and Economic Performance, K.U.Leuven. [Downloadable!]
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  11. Blanchard, Olivier Jean & Quah, Danny, 1989. "The Dynamic Effects of Aggregate Demand and Supply Disturbances," American Economic Review, American Economic Association, vol. 79(4), pages 655-73, September. [Downloadable!] (restricted)
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  12. George Kopits, 1999. "Implications of EMU for Exchange Rate Policy in Central and Eastern Europe," IMF Working Papers 99/9, International Monetary Fund.
  13. Boone, Laurence & Maurel, Mathilde, 1999. "An Optimal Currency Area Perspective of the EU Enlargement to the CEECs," CEPR Discussion Papers 2119, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  14. Babetskii, Ian & Boone, Laurence & Maurel, Mathilde, 2002. "Exchange Rate Regimes and Supply Shocks Asymmetry: The Case of the Accession Countries," CEPR Discussion Papers 3408, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  15. McKinnon, Ronald, 2000. "Mundell, the Euro, and the World Dollar Standard," Journal of Policy Modeling, Elsevier, vol. 22(3), pages 311-324, May. [Downloadable!] (restricted)
  16. Ville Kaitila, 2002. "Accession Countries’ Comparative Advantage in the Internal," International Trade 0209001, EconWPA. [Downloadable!]
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Tanja Broz, 2008. "The Introduction of the Euro in Central and Eastern European Countries - Is it Economically Justifiable?," Working Papers 0801, The Institute of Economics, Zagreb. [Downloadable!]
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