IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this article or follow this journal

Pilgrims to the Eurozone: How far, how fast?

  • Kocenda, Evzen
  • Kutan, Ali M.
  • Yigit, Taner M.

In our analysis, we examine the convergence of all recent ten European Union (EU) members to EU standards. Novel features of the paper include more complete measures of convergence, in particular fiscal convergence; a broader examination of inflation convergence with respect to the Maastricht benchmark as well as the European Central Bank’s inflation objective; and more appropriate tests of convergence that allow for structural breaks. The results indicate slow but steady per-capita real income convergence towards EU standards. Although evidence indicates significant inflation and interest rate convergence, fiscal convergence evidence is discouraging, indicating a lack of fiscal sustainability. An important policy implication of the results is that current fiscal practices may delay the new members’ entry into the Exchange Rate Mechanism II (ERM2) and hence their adoption of the euro. Our empirical results support the following recommendations: authorities need to (1) improve their budget institutions, (2) introduce further reforms to cut down government expenditures, and (3) consider adopting fiscal rules. Therefore, the countries with serious fiscal problems should not rush to enter the Eurozone.

(This abstract was borrowed from another version of this item.)

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.sciencedirect.com/science/article/B6W8Y-4M7K9R3-3/2/8b18d7d10144c163ae9321311fc30960
Download Restriction: Full text for ScienceDirect subscribers only

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Article provided by Elsevier in its journal Economic Systems.

Volume (Year): 30 (2006)
Issue (Month): 4 (December)
Pages: 311-327

as
in new window

Handle: RePEc:eee:ecosys:v:30:y:2006:i:4:p:311-327
Contact details of provider: Postal: Landshuter Str. 4, 93047 Regensburg
Phone: +49-(0)941-943 54 10
Fax: +49-(0)941-943 54 27
Web page: http://www.elsevier.com/locate/inca/621171
Email:


More information through EDIRC

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.:

as in new window
  1. Kutan, Ali M. & Yigit, Taner M., 2005. "Real and nominal stochastic convergence: Are the new EU members ready to join the Euro zone?," Journal of Comparative Economics, Elsevier, vol. 33(2), pages 387-400, June.
  2. Orlowski, Lucjan T., 2004. "Money rules for the eurozone candidate countries," ZEI Working Papers B 05-2004, ZEI - Center for European Integration Studies, University of Bonn.
  3. Julius Horvath, 2004. "Optimum currency area theory: A selective review," Macroeconomics 0401014, EconWPA.
  4. Richards, Anthony J. & Tersman, Gunnar H. R., 1996. "Growth, Nontradables, and Price Convergence in the Baltics," Journal of Comparative Economics, Elsevier, vol. 23(2), pages 121-145, October.
  5. Paul Grauwe & Gunther Schnabl, 2004. "EMU entry strategies for the new member states," Intereconomics: Review of European Economic Policy, Springer, vol. 39(5), pages 241-246, September.
  6. Fatás, Antonio & Mihov, Ilian, 2002. "The Case for Restricting Fiscal Policy Discretion," CEPR Discussion Papers 3277, C.E.P.R. Discussion Papers.
  7. Perron, Pierre, 1989. "The Great Crash, the Oil Price Shock, and the Unit Root Hypothesis," Econometrica, Econometric Society, vol. 57(6), pages 1361-1401, November.
  8. Stanislava Janáčková & Josef C. Brada & Liana Payson, 2000. "Price Convergence and the Readiness of the Czech Economy for Accession to the European Union," Eastern European Economics, M.E. Sharpe, Inc., vol. 38(4), pages 73-91, August.
  9. Orlowski, Lucjan T., 2001. "From inflation targeting to the euro-peg: A model of monetary convergence for transition economies," Economic Systems, Elsevier, vol. 25(3), pages 233-251, September.
  10. Boone, Laurence & Maurel, Mathilde, 1998. "Economic Convergence of the CEECs with the EU," CEPR Discussion Papers 2018, C.E.P.R. Discussion Papers.
  11. Buiter, Willem H., 2004. "To Purgatory and Beyond: When and How Should the Accession Countries from Central and Eastern Europe Become Full Members of EMU?," CEPR Discussion Papers 4342, C.E.P.R. Discussion Papers.
  12. Timothy J. Vogelsang & Marc Tomljanovich, 2002. "Are U.S. regions converging? Using new econometric methods to examine old issues," Empirical Economics, Springer, vol. 27(1), pages 49-62.
  13. von Hagen, Jurgen & Hughes Hallett, Andrew & Strauch, Rolf, 2002. "Budgetary Consolidation in Europe: Quality, Economic Conditions, and Persistence," Journal of the Japanese and International Economies, Elsevier, vol. 16(4), pages 512-535, December.
  14. Willem H. Buiter & Clemens Grafe, 2002. "Anchor, float or abandon ship: exchange rate regimes for the accession countries," BNL Quarterly Review, Banca Nazionale del Lavoro, vol. 55(221), pages 111-142.
  15. Chen, Natalie, 2004. "The behaviour of relative prices in the European Union: A sectoral analysis," European Economic Review, Elsevier, vol. 48(6), pages 1257-1286, December.
  16. Horvath, Julius & Ratfai, Attila, 2004. "Supply and demand shocks in accession countries to the Economic and Monetary Union," Journal of Comparative Economics, Elsevier, vol. 32(2), pages 202-211, June.
  17. de la Fuente, Angel, 2002. "On the sources of convergence: A close look at the Spanish regions," European Economic Review, Elsevier, vol. 46(3), pages 569-599, March.
  18. Fabio M. Natalucci & Federico Ravenna, 2002. "The road to adopting the euro: monetary policy and exchange rate regimes in EU candidate countries," International Finance Discussion Papers 741, Board of Governors of the Federal Reserve System (U.S.).
  19. Kocenda, Evzen, 2005. "Beware of breaks in exchange rates: Evidence from European transition countries," Economic Systems, Elsevier, vol. 29(3), pages 307-324, September.
  20. Fidrmuc, Jan & Tichit, Ariane, 2009. "Mind the break! Accounting for changing patterns of growth during transition," Economic Systems, Elsevier, vol. 33(2), pages 138-154, June.
  21. Balázs Égert & Imed Drine & Kirsten Lommatzsch & Christophe Rault, 2005. "The Balassa-Samuelson Effect in Central and Eastern Europe: Myth or Reality?," Documents de recherche 05-15, Centre d'Études des Politiques Économiques (EPEE), Université d'Evry Val d'Essonne.
  22. Mark Skidmore & Hideki Toya & David Merriman, 2004. "Convergence in Government Spending: Theory and Cross-Country Evidence," Kyklos, Wiley Blackwell, vol. 57(4), pages 587-620, November.
  23. Taylor, Alan M., 1999. "Sources of convergence in the late nineteenth century," European Economic Review, Elsevier, vol. 43(9), pages 1621-1645, October.
  24. Iikka Korhonen & Jarko Fidrmuc, 2003. "The euro goes East. Implications of the 2000-2002 economic slowdown for synchronisation of business cycles between the euro area and CEEs," Macroeconomics 0305007, EconWPA.
  25. Peter Back� & Jarko Fidrmuc & Thomas Reininger & Franz Schardax, 2003. "Price Dynamics in Central and Eastern European EU Accession Countries," Emerging Markets Finance and Trade, M.E. Sharpe, Inc., vol. 39(3), pages 42-78, May.
  26. Selin Sayek & David D. Selover, 2002. "International Interdependence and Business Cycle Transmission between Turkey and the European Union," Southern Economic Journal, Southern Economic Association, vol. 69(2), pages 206-238, October.
  27. Dibooglu, Selahattin & Kutan, Ali M., 2001. "Sources of Real Exchange Rate Fluctuations in Transition Economies: The Case of Poland and Hungary," Journal of Comparative Economics, Elsevier, vol. 29(2), pages 257-275, June.
  28. Daviddi, Renzo & Ilzkovitz, Fabienne, 1997. "The Eastern enlargement of the European Union: Major challenges for macro-economic policies and institutions of Central and East European countries," European Economic Review, Elsevier, vol. 41(3-5), pages 671-680, April.
  29. Fidrmuc, Jarko & Korhonen, Iikka, 2004. "A meta-analysis of business cycle correlation between the euro area and CEECs: What do we know – and who cares?," BOFIT Discussion Papers 20/2004, Bank of Finland, Institute for Economies in Transition.
  30. Brada, Josef C. & Kutan, Ali M. & Zhou, Su, 2005. "Real and monetary convergence between the European Union's core and recent member countries: A rolling cointegration approach," Journal of Banking & Finance, Elsevier, vol. 29(1), pages 249-270, January.
  31. Barro, Robert J, 1990. "Government Spending in a Simple Model of Endogenous Growth," Journal of Political Economy, University of Chicago Press, vol. 98(5), pages S103-26, October.
  32. Brada, Josef C. & Ktan, Ali M., 2001. "The convergence of monetary policy between candidate countries and the European Union," ZEI Working Papers B 07-2001, ZEI - Center for European Integration Studies, University of Bonn.
  33. Bernard, A.B. & Durlauf, S.N., 1994. "Interpreting Tests of the Convergence Hypothesis," Working papers 9401r, Wisconsin Madison - Social Systems.
  34. Andrews, Donald W K & Ploberger, Werner, 1994. "Optimal Tests When a Nuisance Parameter Is Present Only under the Alternative," Econometrica, Econometric Society, vol. 62(6), pages 1383-1414, November.
  35. Babetskii, Ian & Boone, Laurence & Maurel, Mathilde, 2004. "Exchange rate regimes and shocks asymmetry: the case of the accession countries," Journal of Comparative Economics, Elsevier, vol. 32(2), pages 212-229, June.
  36. Vito Tanzi, 2005. "Fiscal Policy and Fiscal Rules in the European Union," CASE Network Studies and Analyses 0301, CASE-Center for Social and Economic Research.
  37. Frederic S. Mishkin, 2004. "Can Inflation Targeting Work in Emerging Market Countries?," NBER Working Papers 10646, National Bureau of Economic Research, Inc.
  38. Buiter, Willem H. & Grafe, Clemens, 2002. "Anchor, Float or Abandon Ship: Exchange Rate Regimes for Accession Countries," CEPR Discussion Papers 3184, C.E.P.R. Discussion Papers.
  39. von Hagen, Jürgen & Hofmann, Boris, 2003. "Macroeconomic implications of low inflation in the euro area," ZEI Working Papers B 29-2003, ZEI - Center for European Integration Studies, University of Bonn.
  40. Paul de Grauwe & Gunther Schnabl, 2004. "Nominal versus Real Convergence with Respect to EMU Accession.How to Cope with the Balassa-Samuelson Dilemma," EUI-RSCAS Working Papers 20, European University Institute (EUI), Robert Schuman Centre of Advanced Studies (RSCAS).
  41. Kydland, Finn E & Prescott, Edward C, 1977. "Rules Rather Than Discretion: The Inconsistency of Optimal Plans," Journal of Political Economy, University of Chicago Press, vol. 85(3), pages 473-91, June.
  42. 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.
  43. Fischer, Stanley & Sahay, Ratna & Vegh, Carlos, 1998. "How far is Eastern Europe from Brussels?," MPRA Paper 20059, University Library of Munich, Germany.
  44. Vito Tanzi, 2005. "Fiscal policy and fiscal rules in the European Union," CESifo Forum, Ifo Institute for Economic Research at the University of Munich, vol. 6(3), pages 57-64, October.
  45. Jiri Jonas & Frederic S. Mishkin, 2003. "Inflation Targeting in Transition Countries: Experience and Prospects," NBER Working Papers 9667, National Bureau of Economic Research, Inc.
  46. Zsolt Darvas & Andrew K. Rose & György Szapáry, 2005. "Fiscal Divergence and Business Cycle Synchronization: Irresponsibility is Idiosyncratic," MNB Working Papers 2005/03, Magyar Nemzeti Bank (the central bank of Hungary).
  47. Quah, Danny T., 1996. "Empirics for economic growth and convergence," European Economic Review, Elsevier, vol. 40(6), pages 1353-1375, June.
  48. Timothy J. Vogelsang, 1998. "Trend Function Hypothesis Testing in the Presence of Serial Correlation," Econometrica, Econometric Society, vol. 66(1), pages 123-148, January.
  49. 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.
  50. Salvatore, Dominick, 2004. "Restructuring and Euroization in Accession Countries," Journal of Policy Modeling, Elsevier, vol. 26(7), pages 889-902, October.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:eee:ecosys:v:30:y:2006:i:4:p:311-327. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.