Asymmetric Fluctuation Bands in the ERM and ERM II : Lessons and Challenges for New EU Member States of Central and Eastern Europe
The enlargement of the European Union raises a series of questions related to new member states' entry to the EU's exchange rate mechanism II (ERM II) and their subsequent adoption of the euro. This paper considers how to determine the best initial central parity for new EU member states from Central and Eastern Europe toward entering ERM II. This is followed by a discussion of the asymmetric nature of the fluctuation bands around a central parity that could be deemed as compatible with the Maastricht criterion on exchange rate stability, i.e., within the officially announced ±15 percent fluctuation margins, at about +2.25 percent on the weaker side, with significantly more scope for appreciation on the stronger side. Thereby, the practices of the European Monetary Institute/European Central Bank and the European Commission are compared when assessing the Maastricht criterion. With this as a background, a hypothetical ERM II is constructed for four new EU member states with flexible exchange rate regimes, namely, the Czech Republic, Hungary, Poland, and Slovakia, to assess, ex post, the hypothetical fulfillment of the Maastricht criterion by these countries. Based on such an examination, fulfilling the criterion may prove a tricky task, which, inter alia, suggests the need for the careful selection of an appropriate initial ERM II central rate.
Volume (Year): 43 (2005)
Issue (Month): 1 (January)
|Contact details of provider:|| Web page: http://mesharpe.metapress.com/link.asp?target=journal&id=106044|
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.:
- R. Golinelli & R. Orsi, 2001. "Hungary and Poland," Working Papers 424, Dipartimento Scienze Economiche, Universita' di Bologna.
- Ray Barrell & Dawn Holland & Katerina Smidkova, 2003.
"Estimates of Fundamental Real Echange Rates for the Five EU Pre- Accession Countries,"
- Kateřina Šmídková & Ray Barrell & Dawn Holland, 2003. "Estimates of fundamental real exchange rates for the five eu pre-accession countries," Prague Economic Papers, University of Economics, Prague, vol. 2003(4).
- Katerina Smidkova & Ray Barrell & Dawn Holland, 2002. "Estimates of Fundamental Real Exchange Rates for the Five EU Pre-Accession Countries," Working Papers 2002/03, Czech National Bank, Research Department.
- Ronald MacDonald & Luca Ricci, 2001.
"PPP and the Balassa Samuelson Effect: the Role of the Distribution Sector,"
CESifo Working Paper Series
442, CESifo Group Munich.
- Ronald MacDonald & Luca Antonio Ricci, 2001. "PPP and the Balassa Samuelson Effect: The Role of the Distribution Sector," IMF Working Papers 01/38, International Monetary Fund.
- R. Macdonald & L. Ricci, 2003. "PPP and the Balassa Samuelson Effect: The Role of the DistributionSector," DNB Staff Reports (discontinued) 81, Netherlands Central Bank.
- Michael Reutter & Hans-Werner Sinn, 2000.
"The Minimum Inflation Rate for Euroland,"
CESifo Working Paper Series
377, CESifo Group Munich.
- Balázs Egert, 2002. "Investigating the Balassa-Samuelson hypothesis in the transition: Do we understand what we see? A panel study," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 10(2), pages 273-309, July.
- Virginie Coudert, 1999. "Comment definir un taux de change d'equilibre pour les pays emergents ?," International Economics, CEPII research center, issue 77, pages 45-66.
- Egert, Balazs & Drine, Imed & Lommatzsch, Kirsten & Rault, Christophe, 2003.
"The Balassa-Samuelson effect in Central and Eastern Europe: myth or reality?,"
Journal of Comparative Economics,
Elsevier, vol. 31(3), pages 552-572, September.
- 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.
- Balázs Égert & Imed Drine & Kirsten Lommatzsch & Christophe Rault, 2002. "The Balassa-Samuelson effect in Central and Eastern Europe: Myth or reality?," William Davidson Institute Working Papers Series 483, William Davidson Institute at the University of Michigan.
- Lommatzsch, Kirsten & Tober, Silke, 2004. "What is behind the real appreciation of the accession countries' currencies?: An investigation of the PPI-based real exchange rate," Economic Systems, Elsevier, vol. 28(4), pages 383-403, December.
- Virginie Coudert & Cécile Couharde, 2003.
"Exchange Rate Regimes and Sustainable Parities for ceecs in the Run-up to emu Membership,"
Presses de Sciences-Po, vol. 54(5), pages 983-1012.
- Virginie Coudert & Cécile Couharde, 2002. "Exchange Rate Regimes and Sustainable Parities for CEECs in the Run-up to EMU Membership," Working Papers 2002-15, CEPII research center.
- Kim, Byung-Yeon & Korhonen, Iikka, 2002.
"Equilibrium Exchange Rates in Transition Countries: Evidence from Dynamic Heterogeneous Panel Models,"
BOFIT Discussion Papers
15/2002, Bank of Finland, Institute for Economies in Transition.
- Kim, Byung-Yeon & Korhonen, Iikka, 2005. "Equilibrium exchange rates in transition countries: Evidence from dynamic heterogeneous panel models," Economic Systems, Elsevier, vol. 29(2), pages 144-162, June.
- Byung-Yeon Kim & Iikka Korhonen, 2002. "Equilibrium Exchange Rates in Transition Countries: Evidence from Dynamic Heterogeneous Panel Models," Macroeconomics 0212014, EconWPA.
When requesting a correction, please mention this item's handle: RePEc:mes:eaeuec:v:43:y:2005:i:1:p:82-115. 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: (Chris Nguyen)
If references are entirely missing, you can add them using this form.