IDEAS home Printed from https://ideas.repec.org/a/nup/jrmdke/v2y2014i4p21-40.html
   My bibliography  Save this article

Fixing the Central Parity and the Evolution of the Currency within the Exchange Rate Mechanism II in the Countries that Joined the Euro Zone

Author

Listed:
  • Lucian Claudiu ANGHEL

    () (College of Management, National University of Political Studies and Public Administration)

  • Florina PINZARU

    () (College of Management, National University of Political Studies and Public Administration)

  • Mihaela DINU

    () (College of Management, National University of Political Studies and Public Administration)

  • Laurentiu-Mihai TREAPAT

    () (College of Management, National University of Political Studies and Public Administration)

Abstract

The present paper presents the models used by the countries that joined the Euro zone after 2000, in fixing the central parity and the evolution of the local currency towards Euro, when participating in Exchange Rate Mechanism II (ERM II). It synthesizes the main theories for determining the equilibrium exchange rate. It also presents the modality of putting them into practice in the countries that had already become members of the Euro zone. The better we know the other countries' experience in the respect of the joining process to the Euro zone, the better will Romania be able to prepare itself for adopting the unique European currency. Thus, we will be synthesize the main approaches within literature and also in the economic policy deciders' practice concerning the estimation of the equilibrium exchange rate and implicitly, of the central parity. The paper presents the modality of fixing the central parity and the experience of participating in ERM II for a number of member states that joined the Euro zone after 2000: Greece, Slovakia, Slovenia, Malta, Cyprus and Estonia. For these states we also analyze the evolution of the currency towards Euro while participating in ERM II. Starting from these examples, we explain the advantages and the disadvantages in fixing the central parity over/at/under the value of the exchange rate on the market at the moment of joining ERM II and we underline the problems that might occur in the case of choosing a central parity that is not compatible with the equilibrium value of the exchange rate.

Suggested Citation

  • Lucian Claudiu ANGHEL & Florina PINZARU & Mihaela DINU & Laurentiu-Mihai TREAPAT, 2014. "Fixing the Central Parity and the Evolution of the Currency within the Exchange Rate Mechanism II in the Countries that Joined the Euro Zone," Management Dynamics in the Knowledge Economy Journal, College of Management, National University of Political Studies and Public Administration, vol. 2(4), pages 21-40, April.
  • Handle: RePEc:nup:jrmdke:v:2:y:2014:i:4:p:21-40
    as

    Download full text from publisher

    File URL: http://www.managementdynamics.ro/index.php/journal/article/download/48/41
    Download Restriction: no

    File URL: http://www.managementdynamics.ro/index.php/journal/article/view/48/41
    Download Restriction: no

    References listed on IDEAS

    as
    1. Viktors Ajevskis & Ramune Rimgailaite & Uldis Rutkaste & Olegs Tkacevs, 2012. "The Assesment of Equilibrium Real Echange Rate of Latvia," Working Papers 2012/04, Latvijas Banka.
    2. Dumitru, Ionut, 2008. "Efectul Balassa-Samuelson in Romania
      [Balassa-Samuelson effect in Romania]
      ," MPRA Paper 18611, University Library of Munich, Germany.
    3. Konstantins Benkovskis & Julia Wörz, 2012. "Non-Price Competitiveness Gains of Central, Eastern and Southeastern European Countries in the EU Market," Focus on European Economic Integration, Oesterreichische Nationalbank (Austrian Central Bank), issue 3, pages 27-47.
    4. Jan Babecky & Ales Bulir & Katerina Smidkova, 2012. "Sustainable Real Exchange Rates in the New EU Member States: What Did the Great Recession Change?," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 62(3), pages 226-251, July.
    5. Oomes, Nienke, 2005. "Maintaining competitiveness under equilibrium real appreciation: The case of Slovakia," Economic Systems, Elsevier, vol. 29(2), pages 187-204, June.
    6. De Broeck, Mark & Slok, Torsten, 2006. "Interpreting real exchange rate movements in transition countries," Journal of International Economics, Elsevier, vol. 68(2), pages 368-383, March.
    7. De Broeck, Mark & Sloek, Torsten, 2001. "Interpreting real exchange rate movements in transition countries," BOFIT Discussion Papers 7/2001, Bank of Finland, Institute for Economies in Transition.
    8. George Kyriacou & Maria Papageorghiou, 2010. "Assessing the Equilibrium Exchange Rate of the Cyprus Pound at the time of Euro Adoption," Working Papers 2010-6, Central Bank of Cyprus.
    9. G. Russell Kincaid & Martin Fetherston & Peter Isard & Hamid Faruqee, 2001. "Methodology for Current Account and Exchange Rate Assessments," IMF Occasional Papers 209, International Monetary Fund.
    10. John Williamson, 1994. "Estimating Equilibrium Exchange Rates," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 17.
    11. Peter Isard, 2007. "Equilibrium Exchange Rates; Assessment Methodologies," IMF Working Papers 07/296, International Monetary Fund.
    12. Luca Antonio Ricci & Gian Maria Milesi‐Ferretti & Jaewoo Lee, 2013. "Real Exchange Rates and Fundamentals: A Cross‐Country Perspective," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 45(5), pages 845-865, August.
    13. Maeso-Fernandez, Francisco & Osbat, Chiara & Schnatz, Bernd, 2004. "Towards the estimation of equilibrium exchange rates for CEE acceding countries: methodological issues and a panel cointegration perspective," Working Paper Series 353, European Central Bank.
    14. Bela Balassa, 1964. "The Purchasing-Power Parity Doctrine: A Reappraisal," Journal of Political Economy, University of Chicago Press, vol. 72, pages 584-584.
    15. Marit Hinnosaar & Hannes Kaadu & Lenno Uuskula, 2005. "Estimating the equilibrium exchange rate of the Estonian kroon," Bank of Estonia Working Papers 2005-2, Bank of Estonia, revised 10 Oct 2005.
    16. Martins Bitans, 2002. "Real Exchange Rate in Latvia (1994-2001)," Working Papers 2002/01, Latvijas Banka.
    17. Altar, Moisa & Albu, Lucian Liviu & Dumitru, Ionut & Necula, Ciprian, 2009. "Estimarea Cursului Real de Echilibru si a Deviatiilor pentru Romania," Studii Economice 090706, National Institute of Economic Research.
    18. Luca Buldorini & Stelios Makrydakis & Christian Thimann, 2002. "The effective exchange rates of the euro," Occasional Paper Series 02, European Central Bank.
    Full references (including those not matched with items on IDEAS)

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:nup:jrmdke:v:2:y:2014:i:4:p:21-40. 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: (Cristian-Mihai VIDU). General contact details of provider: http://edirc.repec.org/data/fmsnsro.html .

    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 CitEc recognized a reference but did not link an item in RePEc 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 RePEc Author Service 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.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.