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From Currency Board Arrangement to Euro Area: Structural Risks and Opportunities

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  • Sabrina Kalinkova

Abstract

Bulgaria is set to adopt the euro on 1 January 2026, following the Council of the EU’s formal approval and the ECB/Commission convergence assessments. This act represents an important milestone in the country’s efforts to integrate more closely into the European Union. On the one hand, this move reflects Bulgaria’s macroeconomic progress and readiness to integrate into the core of the euro area. On the other hand, however, concerns are emerging regarding potential inflationary shocks, social risks and vulnerabilities in the structures of the economy. This is precisely why this study seeks to build a reliable forecast for the development of the Bulgarian economy in the first years after the introduction of the euro, drawing on both modern econometric models and theoretical frameworks. The approach used is a dynamic stochastic general equilibrium (DSGE) model. For the empirical part, data is used from: The European Central Bank (ECB), Eurostat and the Bulgarian National Bank (BNB); The International Monetary Fund (IMF). The observation period covers 2000-2024. The study fills a significant gap, as there are quite a few publications that examine the euro adoption retrospectively (e.g. in Slovenia and the Baltic states), but there are far fewer studies that dare to predict future accession in the context of current economic uncertainty, geopolitical pressures, and post-pandemic reality. The scenarios proposed here are not just theoretical exercises: the goal is to prepare a quantitatively substantiated plan for Bulgaria’s macroeconomic development that will be useful for the strategic planning of politicians, investors, and public institutions.

Suggested Citation

  • Sabrina Kalinkova, 2026. "From Currency Board Arrangement to Euro Area: Structural Risks and Opportunities," Economic Studies journal, Bulgarian Academy of Sciences - Economic Research Institute, issue 3, pages 66-89.
    • Handle: RePEc:bas:econst:y:2026:i:3:p:66-89
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    File URL: https://archive.econ-studies.iki.bas.bg/2026/2026_03/2026_03_04.pdf
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    More about this item

    JEL classification:

    • F45 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Macroeconomic Issues of Monetary Unions
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory

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