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Evaluating the Maastricht Convergence Criteria for New Prospective European Union Members

Author

Listed:
  • Vesile Kutlu
  • Nese Kavrukkoca

Abstract

This paper aims to assess the macroeconomic condition of the four new prospective members, which are Turkey, Croatia, Bulgaria, and Romania, depending on four Maastricht Convergence Criteria in order to determine which candidate is ready to join EMU. We use cointegration approach to analyze cointegrating relations among inflation rates, interest rate, deficit-to-GDP, and debt-to-GDP ratios of four candidates in relation to Germany. Bounds Testing and Engle-Granger Cointegration Approach are applied to all criteria to test convergence. None of the convergence criteria for Turkey and Romania in relation to Germany has been achieved. On the other hand, there is evidence of nominal convergence between Croatia and Germany in terms of deficit-to-GDP ratio and interest rates. Also, there is cointegration between deficit-to-GDP ratio of Bulgaria and that of Germany.

Suggested Citation

  • Vesile Kutlu & Nese Kavrukkoca, 2007. "Evaluating the Maastricht Convergence Criteria for New Prospective European Union Members," Central Bank Review, Research and Monetary Policy Department, Central Bank of the Republic of Turkey, vol. 7(1), pages 13-26.
  • Handle: RePEc:tcb:cebare:v:7:y:2007:i:1:p:13-26
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    File URL: http://www.tcmb.gov.tr/wps/wcm/connect/EN/TCMB+EN/Main+Menu/Publications/Central+Bank+Review/2007/Volume+7-1/
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    References listed on IDEAS

    as
    1. Brada, Josef C. & Kutan, Ali M., 2001. "The convergence of monetary policy between candidate countries and the European Union," Economic Systems, Elsevier, vol. 25(3), pages 215-231, September.
    2. Josef Brada, Ali M. Kutan, 2002. "Balkan and Mediterranean Candidates for European Union Membership: The Convergence of Their Monetary Policy with That of the European Central Bank," Eastern European Economics, Taylor & Francis Journals, pages 31-44.
    3. Haug, Alfred A. & MacKinnon, James G. & Michelis, Leo, 2000. "European Monetary Union: a cointegration analysis," Journal of International Money and Finance, Elsevier, vol. 19(3), pages 419-432, June.
    4. M. Hashem Pesaran & Yongcheol Shin & Richard J. Smith, 2001. "Bounds testing approaches to the analysis of level relationships," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 16(3), pages 289-326.
    5. Karfakis, Costas J & Moschos, Demetrios M, 1990. "Interest Rate Linkages within the European Monetary System: A Time Series Analysis," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 22(3), pages 389-394, August.
    6. Engle, Robert & Granger, Clive, 2015. "Co-integration and error correction: Representation, estimation, and testing," Applied Econometrics, Publishing House "SINERGIA PRESS", vol. 39(3), pages 106-135.
    7. Hafer, R. W. & Kutan, Ali M. & Su Zhou, 1997. "Linkage in EMS term structures: evidence from common trend and transitory components," Journal of International Money and Finance, Elsevier, vol. 16(4), pages 595-607, August.
    8. repec:syd:wpaper:144 is not listed on IDEAS
    9. Dilip Dutta & Nasiruddin Ahmed, 1999. "An aggregate import demand function for Bangladesh: a cointegration approach," Applied Economics, Taylor & Francis Journals, vol. 31(4), pages 465-472.
    10. 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, pages 387-400.
    11. Tang, Tuck Cheong, 2003. "Japanese aggregate import demand function: reassessment from the 'bounds' testing approach," Japan and the World Economy, Elsevier, vol. 15(4), pages 419-436, December.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Convergence; Engle-Granger; Bounds Testing;

    JEL classification:

    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • F15 - International Economics - - Trade - - - Economic Integration
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • O57 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Comparative Studies of Countries
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models

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