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Europe as an optimum currency area: the experience of the Baltic countries

Author

Listed:
  • Christos Papazoglou

    (Bank of Greece)

  • Dimitrios Sideris

    (Bank of Greece)

  • Orestis Tsagklas

    (Panteion University)

Abstract

The key conclusions of the Optimum Currency Area (OCA) literature is that for a currency area to be successful, the benefits of joining should outweigh the costs that the loss of monetary policy tools entails for prospective member. To this end, a number of criteria need to be met to reduce the incidence and impact of asymmetric shocks. Moreover, if the criteria are not fulfilled ex ante, a strand of the literature argues that monetary integration itself will tend to promote the changes required so that the criteria hold ex post. This paper focuses on the case of the three Baltic countries (Estonia, Lithuania and Latvia). It shows that, before the crisis of 2008, the Baltic countries did converge on the euro area and met the OCA criteria; afterwards, however, the occurrence of significant asymmetric shocks led to divergence between these countries and the rest of the euro area. This conclusion supports the view that the convergence achieved pre-crisis was not enough to keep the flaws of the monetary union coming to light in the aftermath.

Suggested Citation

  • Christos Papazoglou & Dimitrios Sideris & Orestis Tsagklas, 2016. "Europe as an optimum currency area: the experience of the Baltic countries," Economic Bulletin, Bank of Greece, issue 44, pages 35-46, December.
  • Handle: RePEc:bog:econbl:y:2016:i:44:p:35
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    More about this item

    Keywords

    Optimal currency area; Baltic countries; euro area;
    All these keywords.

    JEL classification:

    • F15 - International Economics - - Trade - - - Economic Integration
    • F45 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Macroeconomic Issues of Monetary Unions

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