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Monetary policy and EMU enlargement: Issues regarding ERM II and adoption of the euro in Estonia

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  • Raoul Lättemäe
  • Martti Randveer

Abstract

The aim of the paper is to give an overview of the issues related to Estonia's entry into ERM II. For that purpose the article describes the official position of the Estonian authorities regarding entry into ERM II and the adoption of the euro, explains the rationale for early entry into ERM II, and presents the reasons for maintaining the currency board arrangement until full membership in EMU. Also, the challenges of the adoption of the euro are discussed. The article concludes that early entry into ERM II is appropriate as the perceived costs—short-term costs of fiscal consolidation and the cost of giving up independent monetary policy and flexible exchange rates as stabilization tools—are practically non-existent in Estonia. The paper argues that the high level of exchange rate stability and nominal convergence, relatively high flexibility of the economy, and integration with the euro area support the rationale for maintaining the currency board arrangement and adopting the euro early. Copyright International Atlantic Economic Society 2004

Suggested Citation

  • Raoul Lättemäe & Martti Randveer, 2004. "Monetary policy and EMU enlargement: Issues regarding ERM II and adoption of the euro in Estonia," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 32(4), pages 293-301, December.
    • Handle: RePEc:kap:atlecj:v:32:y:2004:i:4:p:293-301
    DOI: 10.1007/BF02304234
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    References listed on IDEAS

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    1. International Monetary Fund, 2003. "Republic of Estonia: Selected Issues and Statistical Appendix," IMF Staff Country Reports 2003/331, International Monetary Fund.
    2. Mr. Michael Frenkel & Mr. Christiane Nickel, 2002. "How Symmetric Are the Shocks and the Shock Adjustment Dynamics Between the Euro Area and Central and Eastern European Countries?," IMF Working Papers 2002/222, International Monetary Fund.
    3. International Monetary Fund, 2003. "Competitiveness in the Baltics in the Run-Up to EU Accession," IMF Staff Country Reports 2003/114, International Monetary Fund.
    4. Faggio, Giulia & Konings, Jozef, 1999. "Gross Job Flows and Firm Growth in Transition Countries: Evidence Using Firm Level Data on Five Countries," CEPR Discussion Papers 2261, C.E.P.R. Discussion Papers.
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    1. repec:kap:iaecre:v:13:y:2007:i:3:p:365-378 is not listed on IDEAS
    2. Farhang Niroomand & Edward Nissan, 2007. "Socio-Economic Gaps within the EU: A Comparison," International Advances in Economic Research, Springer;International Atlantic Economic Society, vol. 13(3), pages 365-378, August.
    3. 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.

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