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Lithuania's Track to the Euro and the Endogeneity Hypothesis

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  • Jurgita Jurgutyte

    (Bank of Lithuania)

Abstract

This paper analyses the business cycle synchronization between Lithuania and the Euro area using the structural vector autoregression (SVAR) model with Blanchard and Quah decomposition. The analysis includes experiences both before and after Lithuania pegged its currency to the Euro in the beginning of 2002. The present calculations give positive correlation coefficients for the period 2002-2005 and show that the Lithuanian business cycle becomes more synchronized with the business cycle in the Euro area. Compared with earlier calculations, this result gives a positive outlook and thus corroborates the endogeneity hypothesis of the Optimum Currency Area (OCA) theory in the Lithuanian case. Adoption of the Euro for Lithuania should therefore be of less concern than previously anticipated based on experiences from the years before the Lithuanian currency was fixed to the US dollar.

Suggested Citation

  • Jurgita Jurgutyte, 2006. "Lithuania's Track to the Euro and the Endogeneity Hypothesis," Baltic Journal of Economics, Baltic International Centre for Economic Policy Studies, vol. 6(1), pages 53-69, July.
    • Handle: RePEc:bic:journl:v:6:y:2006:i:1:p:53-69
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    References listed on IDEAS

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    1. 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 655-673, September.
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    5. Peter Backé & Christian Thimann & Olga Arratibel & Oscar Calvo-Gonzalez & Arnaud Mehl & Carolin Nerlich, 2004. "The acceding countries’ strategies towards ERM II and the adoption of the euro - an analytical review," Occasional Paper Series 10, European Central Bank.
    6. Backé, Peter & Thimann, Christian & Arratibel, Olga & Calvo-Gonzalez, Oscar & Mehl, Arnaud & Nerlich, Carolin, 2004. "The acceding countries’ strategies towards ERM II and the adoption of the euro: an analytical review," Occasional Paper Series 10, European Central Bank.
    7. Michael Artis & Massimiliano Marcellino & Tommaso Proietti, 2004. "Characterising the Business Cycle for Accession Countries," Working Papers 261, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
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    Cited by:

    1. Zuzana Brixiova & Margaret H. Morgan & Andreas Wörgötter, 2010. "On The Road to Euro: How Synchronized Is Estonia with the Euro zone?," European Journal of Comparative Economics, Cattaneo University (LIUC), vol. 7(1), pages 203-227, June.
    2. Arslan Razmi, 2018. "Montenegro’s Unilateral Euroization," UMASS Amherst Economics Working Papers 2018-13, University of Massachusetts Amherst, Department of Economics.

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    JEL classification:

    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
    • E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)

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