Would it have paid to be in the eurozone?
AbstractGiving up an independent monetary policy and a flexible exchange rate are the key sources of costs and benefits entailed to joining a monetary union. In this paper we analyze their ex post impact on the stability of the Polish economy during the recent financial crisis. To this end we construct a small open economy DSGE model and estimate it for Poland and the euro area. Then we run a counterfactual simulation, assuming Poland's euro area accession in 1q2007. The results are striking - volatilities of GDP and inflation increase substantially. In particular, had Poland adopted the euro, GDP growth would have oscillated between -6% and +9% (-9% to +11% under more extreme assumptions) instead of between 1% and 7%. We conclude that during the analyzed period independent monetary policy and, in particular, the flexible exchange rate played an important stabilizing role for the Polish economy.
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Bibliographic InfoPaper provided by Department of Applied Econometrics, Warsaw School of Economics in its series Working Papers with number 70.
Date of creation: 23 Oct 2013
Date of revision:
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optimum currency area; euro-area accession; emerging market;
Other versions of this item:
- E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
- E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
- E65 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Studies of Particular Policy Episodes
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-11-14 (All new papers)
- NEP-CBA-2013-11-14 (Central Banking)
- NEP-CMP-2013-11-14 (Computational Economics)
- NEP-DGE-2013-11-14 (Dynamic General Equilibrium)
- NEP-EEC-2013-11-14 (European Economics)
- NEP-MAC-2013-11-14 (Macroeconomics)
- NEP-MON-2013-11-14 (Monetary Economics)
- NEP-TRA-2013-11-14 (Transition Economics)
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.:
- Michał Brzoza-Brzezina & Krzysztof Makarski, 2010.
"Credit Crunch in a Small Open Economy,"
National Bank of Poland Working Papers
75, National Bank of Poland, Economic Institute.
- Marcin Kolasa, 2008.
"Structural heterogeneity or asymmetric shocks? Poland and the euro area through the lens of a two-country DSGE model,"
National Bank of Poland Working Papers
49, National Bank of Poland, Economic Institute.
- Kolasa, Marcin, 2009. "Structural heterogeneity or asymmetric shocks? Poland and the euro area through the lens of a two-country DSGE model," Economic Modelling, Elsevier, vol. 26(6), pages 1245-1269, November.
- Kolasa, Marcin, 2008. "Structural heterogeneity or asymmetric shocks? Poland and the euro area through the lens of a two-country DSGE model," MPRA Paper 8750, University Library of Munich, Germany.
- Christoffel, Kai & Coenen, Günter & Warne, Anders, 2008. "The New Area-Wide Model of the euro area: a micro-founded open-economy model for forecasting and policy analysis," Working Paper Series 0944, European Central Bank.
- Michał Gradzewicz & Krzysztof Makarski, 2013. "The business cycle implications of the euro adoption in Poland," Applied Economics, Taylor & Francis Journals, vol. 45(17), pages 2443-2455, June.
- Andrzej Torój & Karolina Konopczak, 2012. "Crisis Resistance Versus Monetary Regime: A Polish–Slovak Counterfactual Exercise," Central European Journal of Economic Modelling and Econometrics, CEJEME, vol. 4(1), pages 1-22, March.
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